The new UPI rules have created confusion among users, with many wondering whether they will now have to pay a fee every time they use UPI, the government has clarified that ordinary users will not be charged for using UPI. The new framework mainly changes how certain merchants and businesses are charged for accepting high-value UPI payments and gthe changes will come into effect from October 15, 2026.
You will not be charged for sending money to another person. If you use UPI to send money to another person, there will be no charge, irrespective of the amount, for example, if you send ₹500 to a friend, ₹5,000 to a family member or even ₹50,000 to another individual through UPI, you will not have to pay a transaction fee.
These are called person-to-person (P2P) transactions and the government said P2P transactions account for about 37% of UPI transactions by volume and 70% by value and these transactions will remain outside the new MDR framework.
If you scan a shop's UPI QR code and pay ₹500, ₹1,000 or ₹2,000, there will be no MDR applicable to the transaction.
In simple terms, customers can continue making UPI payments of up to ₹2,000 to merchants without paying an additional charge and the new charge applies only to specified person-to-merchant (P2M) transactions above ₹2,000.
This is where the new framework applies.
For specified merchant transactions above ₹2,000, a 0.4% Merchant Discount Rate (MDR) will apply.
MDR is essentially a charge within the digital payment system and it is paid by the merchant to the payment ecosystem and is shared among participating entities such as banks, payment service providers and UPI application providers.
It is not a tax collected from customers, for example, if a customer makes a ₹10,000 UPI payment to an applicable merchant, 0.4% of ₹10,000 works out to ₹40, however, the customer is not supposed to pay this ₹40 separately. The government has said banks have been advised to ensure that merchants do not pass the MDR cost on to customers, so, the customer should still pay ₹10,000, rather than ₹10,040.
There is also a cap on the MDR for larger transactions.
For applicable UPI merchant transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction, this means the charge will not keep increasing beyond ₹300 even when the transaction value goes above ₹75,000, subject to the applicable rules.
The new framework does not impose MDR on small merchants covered under the Person-to-Person Merchant (P2PM) classification. Small merchants receiving up to ₹1 lakh per month through UPI QR codes under this category will continue to have zero MDR on the UPI payments they receive, and this includes small businesses such as neighbourhood shops and street vendors that fall under the specified P2PM classification.
For customers, this means there is no new UPI charge simply because they are paying a small shop or street vendor.
Some sectors will not follow the 0.4% MDR structure.
The government has specified sectors including railways, telecommunications, insurance, fuel and agricultural inputs, among others, where transactions above ₹2,000 will attract a flat MDR of ₹5 per transaction and the flat-rate system has been introduced for specified essential and thin-margin sectors, again, this MDR is an ecosystem charge and is not supposed to be added to the customer's UPI payment.
Payments related to mutual funds, securities, stockbrokers and dealers will have a separate MDR structure.
For these specified transactions, the MDR will be 0.02%, with a maximum cap of ₹300 per transaction and the government has said the lower rate is intended to support continued retail participation in financial markets.
Another important point for regular UPI users is that there will be no monthly quota for free UPI transactions and the new framework does not mean that users will get a fixed number of free UPI payments every month and then start paying a fee.
Individuals will continue to have unlimited free UPI usage, subject to applicable transaction and security limits.
Banks and NPCI can have daily transaction limits depending on the type of transaction and these limits are meant for security and risk management, so if you reach your daily transaction limit, it does not mean that you have to pay a fee to continue using UPI, it means you cannot make further transactions until the applicable limit resets.
For ordinary UPI users, these services remain free under the new framework:
1. Sending money to another person: Free, irrespective of the amount.
2. Receiving money: Free.
3. Paying a merchant up to ₹2,000: Free.
4. Payments to eligible small merchants under the P2PM category: Zero MDR.
5. Monthly UPI usage: No monthly fee, quota or paid tier for individuals.
For customers, no.
The change introduces MDR for certain merchant transactions, but the government has clarified that the charge is not to be paid by the customer. The government has also stated that around 96% of merchant transactions will remain unaffected, because they are either below ₹2,000 or covered by the zero-MDR framework for eligible small merchants and according to the government's figures, MDR is expected to apply to around 4% of merchant transactions, so, for an ordinary UPI user, the practical takeaway is simple: sending money to another person remains free, receiving money remains free, and paying a shop up to ₹2,000 remains free. Even when you make an applicable merchant payment above ₹2,000, the new MDR is a charge within the payment ecosystem and should not be added to your bill.
