Key Change in UPI Payments

Unified Payments Interface (UPI) transactions will no longer be entirely free under the new framework. Person-to-person (P2P) transfers will continue to remain free, with no charge imposed on users irrespective of the number or value of transactions. However, merchant payments (P2M) above ₹2,000 made to large businesses and e-commerce companies will attract a Merchant Discount Rate (MDR). The rules, set to take effect from October 15, classify P2M transactions up to ₹2,000 as free electronic payments. Small merchants receiving up to ₹1 lakh a month through UPI QR codes will also remain exempt from MDR. An account will be classified under P2M only if it receives more than ₹1 lakh per month for three consecutive months.

For certain categories, transactions above ₹2,000 will attract a flat MDR of ₹5 instead of a percentage-based charge. These include insurance premiums, petrol and diesel purchases, government electricity, water and piped-gas bills, school and college fees, telecom payments and railway tickets. Capital-market transactions, including mutual funds and payments to SEBI-registered stockbrokers, will attract an MDR of 0.02%, capped at ₹300 per transaction. The government said transactions above ₹2,000 accounted for only 4% of UPI merchant transactions in 2025-26 but represented 66% of the total value. MDR revenue will be distributed among account-holding banks, UPI app providers and acquiring banks in a 40:30:30 ratio.