UPI Remains Free for P2P Payments: What the New MDR Framework Means for Users and Merchants

UPI remains free for all person-to-person transactions. Learn what the new MDR framework means for merchant payments, ₹2,000 transactions, small merchants and customers. India’s Unified Payments Interface (UPI) continues to remain free for person-to-person payments, even after the introduction of a new framework governing Merchant Discount Rate (MDR).

The clarification is important for millions of Indians who use UPI every day to send money to friends and family, pay bills, shop at local stores and make digital payments.

The biggest takeaway is simple: there is no change to the cost of person-to-person UPI transactions. Users can continue transferring money to another person through UPI without paying a transaction fee, regardless of the amount.

For merchant payments, the majority of transactions will also remain unaffected. According to the government’s clarification, around 96% of person-to-merchant (P2M) UPI transactions will continue without MDR, while MDR will apply only to specified merchant transactions above ₹2,000.

UPI Will Remain Free for Person-to-Person Payments

One of the most important points for consumers is that the new framework does not introduce charges on person-to-person UPI payments.

Whether you transfer ₹100, ₹1,000, ₹10,000 or a larger amount to another individual, the transaction will continue to remain free.

This covers common UPI activities such as:

• Sending money to family members

• Splitting a restaurant or travel bill with friends

• Transferring money between individuals

• Sending money for household expenses

• Making other eligible person-to-person transfers

So, if you are wondering whether you will have to pay more to send money to another person using UPI, the answer under the new framework is no.

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What Is Changing With UPI Merchant Payments?

The new framework primarily concerns person-to-merchant payments, rather than transfers between individuals.

When you scan a UPI QR code at a shop, restaurant or other business, the payment is considered a P2M transaction.

The framework provides that merchant payments up to ₹2,000 will continue under the zero-MDR arrangement. Certain transactions involving eligible small merchants will also remain covered by the zero-MDR framework.

This means the vast majority of everyday UPI payments will continue without an MDR-related cost to the customer.

Around 96% of Merchant Transactions Will Remain Unaffected

A key figure highlighted in the government’s clarification is that approximately 96% of P2M transactions will remain unaffected.

MDR is expected to apply only to a limited category of specified merchant transactions above ₹2,000.

For consumers, this distinction matters. The introduction of MDR does not mean that every time someone scans a UPI QR code, a new fee will be added to the payment.

Instead, the framework establishes MDR for specified categories of merchant transactions while keeping a large majority of smaller and eligible payments outside the charge.

UPI Payment Rules at a Glance

What Is MDR in UPI?

MDR stands for Merchant Discount Rate.

It is a charge associated with certain merchant transactions within the digital payment ecosystem. It is not the same as a tax imposed on consumers.

MDR is distributed among participants in the payment ecosystem, including banks and payment application providers, to support the operation and expansion of the payment infrastructure.

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Is MDR a Government Tax?

No.

MDR is not a tax collected by the government or NPCI.

It is an ecosystem-level charge associated with eligible merchant transactions. The framework is intended to provide a mechanism for supporting the continued operation and expansion of the UPI ecosystem.

For customers, this distinction is important because MDR should not be confused with a fee charged directly to a person for using UPI.

Will Customers Have to Pay MDR?

The government’s clarification states that customers are not supposed to bear MDR as a separate UPI transaction charge.

In other words, the introduction of MDR for specified merchant transactions does not mean that a customer should suddenly see an additional “UPI fee” whenever they make an eligible payment.

The MDR mechanism operates among participants in the payment ecosystem.

Consumers should, however, pay attention to the final amount displayed before completing any digital payment and retain transaction records if a merchant attempts to add an unexplained payment charge.

What About Small Merchants?

Small businesses are an important part of India’s digital payment ecosystem.

The new framework continues zero-MDR treatment for eligible small merchants covered by the specified framework.

This is particularly relevant to neighbourhood shops, street vendors and other small businesses that increasingly rely on UPI QR codes to accept digital payments.

The objective is to prevent payment costs from creating an additional burden for small merchants while establishing a framework for specified larger merchant transactions.

Which UPI Transactions Can Attract MDR?

MDR does not apply universally to all UPI payments.

Under the framework, specified merchant transactions above ₹2,000 can attract MDR.

The stated standard rate for qualifying transactions is 0.4%, subject to a maximum of ₹300 for transactions of ₹75,000 or more.

There are also specific rates for certain categories.

These rates apply to specified merchant-side transactions and should not be interpreted as a blanket fee on consumers using UPI.

Why Has the New UPI Framework Been Introduced?

UPI has expanded rapidly and now handles an enormous volume of digital payments across India.

That growth requires significant payment infrastructure, technology, banking connectivity and ongoing operational support.

The new framework has been introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee.

The stated objective is to create a framework that can support the long-term sustainability of UPI while continuing to protect individuals and small merchants from additional payment charges.

Will UPI Become a Paid Service?

For person-to-person payments, no.

The new framework does not introduce a charge for individuals simply because they transfer money to another person through UPI.

For merchant payments, the situation is more specific. MDR can apply to certain qualifying transactions above ₹2,000, but the government says approximately 96% of P2M transactions will remain unaffected.

Therefore, it would be misleading to describe the framework simply as “UPI becoming paid.”

The more accurate description is that a limited MDR framework is being introduced for specified merchant transactions while P2P UPI remains free.

What This Means for Everyday UPI Users

For most people, there is no major change to the way they use UPI.

If you are sending money to another person, you can continue doing so without an MDR charge.

If you are making a typical merchant payment of up to ₹2,000, the payment remains outside MDR under the stated framework.

Even among larger merchant payments, MDR applies only to specified categories.

Three Things UPI Users Should Remember

1. Sending money to another person remains free.

There is no MDR for P2P UPI payments, irrespective of the amount.

2. Most merchant payments remain unaffected.

Approximately 96% of P2M transactions are expected to remain outside the MDR framework.

3. MDR is not the same as a UPI user fee.

MDR is a merchant-side payment ecosystem mechanism and is not a government tax on consumers.

What Does This Mean for Merchants?

The impact depends on the type and value of transactions a merchant receives.

Small merchants covered by the zero-MDR framework continue to receive protection, while specified merchant transactions above ₹2,000 may fall under MDR.

For businesses, this means it is important to understand which transactions qualify under the new framework rather than assuming that all UPI payments will attract a charge.

Merchants should also communicate clearly with customers and avoid presenting MDR as a mandatory “UPI fee” charged by the government.

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The Bigger Picture: Keeping UPI Free and Sustainable

UPI’s success has been built around convenience, speed and accessibility.

The challenge going forward is maintaining those advantages while ensuring that the financial and technological infrastructure supporting the system can continue to grow.

The latest framework attempts to address that challenge by keeping P2P payments free, protecting eligible small merchants and limiting MDR to specified merchant transactions.

For consumers, the most important message is therefore straightforward: UPI is not becoming chargeable for person-to-person transfers.

At the same time, some specified merchant transactions above ₹2,000 may now fall within an MDR framework.

Frequently Asked Questions About UPI MDR

1. Will UPI transfers between two people remain free?

Yes. Person-to-person UPI transactions will continue to remain free, regardless of the amount transferred.

2. Will I have to pay a fee to send ₹10,000 through UPI?

No. The MDR framework does not apply to person-to-person UPI transfers.

3. Are UPI payments below ₹2,000 free?

Eligible merchant payments up to ₹2,000 remain under the zero-MDR arrangement. P2P payments are free regardless of the amount.

4. Will every UPI merchant payment above ₹2,000 attract MDR?

No. MDR applies only to specified merchant transactions covered by the framework.

5. How many merchant transactions will remain unaffected?

Approximately 96% of P2M transactions are expected to remain unaffected.

6. Is MDR a tax?

No. MDR is not a government tax. It is a payment ecosystem charge distributed among participating entities.

7. Does NPCI collect MDR as a tax?

No. MDR is not a tax collected by NPCI or the government.

8. Can a merchant automatically charge customers MDR?

MDR should not be confused with a direct customer transaction fee. Customers should check the amount shown before completing a payment and question any unexplained additional charge.

9. Are small merchants protected under the new framework?

Eligible small merchants continue to receive zero-MDR treatment under the specified framework.

10. Why was the MDR framework introduced?

The framework is intended to support the long-term sustainability and continued expansion of the UPI payment ecosystem while protecting individuals and eligible small merchants.

The new UPI framework does not mean that Indians will suddenly have to pay to use UPI.

Person-to-person UPI transactions remain completely free, regardless of the amount.

For merchant payments, transactions up to ₹2,000 and eligible small-merchant transactions continue under zero-MDR arrangements. The government says approximately 96% of P2M transactions will remain unaffected, while MDR will apply only to specified merchant transactions above ₹2,000.

For everyday users, the practical message is simple: you can continue using UPI to send money to friends and family without worrying about MDR charges.

The changes are primarily focused on how certain merchant transactions are handled within the payment ecosystem, with the broader aim of maintaining UPI’s long-term sustainability while keeping digital payments accessible.

 

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• Is UPI still free for P2P transactions?

• Will UPI charges apply above ₹2,000?

• What is MDR in UPI?

• Will customers pay MDR on UPI?

• What percentage of UPI merchant transactions remain unaffected?

• Are small merchants exempt from MDR?

• Is MDR a tax?

• Why has the new UPI MDR framework been introduced?

UPI remains free, UPI MDR framework, UPI charges 2026, UPI transaction charges, UPI P2P transactions ,

UPI remains free, UPI MDR framework, UPI charges 2026, UPI transaction charges, UPI P2P transactions , UPI remains free, UPI MDR framework, UPI charges 2026, UPI transaction charges, UPI P2P transactions ,