UPI Stays Free for P2P and 96% of Merchant Payments

The Ministry of Finance issued a clarification on 15 September 2026 about the new UPI framework. The message is that ordinary users pay nothing. All person-to-person transfers stay completely free, whatever the amount sent. Payments to merchants up to 2,000 rupees also stay free. So do transactions covered by the zero-MDR arrangement for small merchants.

What MDR is, and is not

MDR is the Merchant Discount Rate. The release says it is neither a tax nor a charge taken by the Government or by NPCI. It is shared among the participants of the payment system. Banks and payment application providers are among them. The money supports the running and the expansion of the UPI network.

Who will pay it

The essential sectors named are railways, telecommunications, insurance, fuel and agricultural inputs. Person-to-person transactions account for 70 per cent of the total value of UPI transactions, and all of that stays outside the charge.

The protection for customers

The release states plainly that customers do not pay MDR. Banks have been told to see that merchants do not pass the cost on. Application providers may not levy platform fees or hidden charges. Individuals keep unlimited free usage with no monthly quota and no tiered cap. Daily limits set by banks and NPCI, running from 1 lakh to 5 lakh rupees by category, are safeguards against risk and not charging thresholds.

The scale and the purpose

Data analysis shows the charge will touch only about 4 per cent of merchant transactions. Hence about 96 per cent stay unaffected. A dedicated fund will be built from an amount equal to 5 per cent of total MDR collections to spread UPI among small merchants. The framework rests on the Payment and Settlement Systems Act of 2007 and follows the deliberations of the UPI Steering Committee.