The government has clarified that person-to-person (P2P) UPI transactions will remain completely free, regardless of the amount transferred. Users will not face any charges for sending money to another individual through UPI.

The Finance Ministry also said that payments made to merchants up to ₹2,000 will remain free. Transactions covered under the zero Merchant Discount Rate (MDR) framework for small merchants will also continue without charges. As a result, around 96 per cent of all person-to-merchant (P2M) UPI transactions will remain unaffected.

MDR will apply only to specified merchant transactions above ₹2,000. The ministry clarified that MDR is neither a tax nor a fee collected by the government or the National Payments Corporation of India (NPCI). The amount is shared among participants in the payment ecosystem, including banks and payment application providers. It supports the operation and expansion of the UPI network.

NPCI has introduced a revised UPI Merchant Discount Rate framework for select merchant transactions. The new framework will come into effect from October 15th. UPI payments will continue to remain free for consumers.

According to an Akashvani correspondent, a dedicated fund will also be created to promote UPI usage among small merchants. The fund will receive a contribution equal to 5 per cent of the total MDR collections.

The Finance Ministry said charges will apply only to P2M transactions above ₹2,000. UPI app providers have been explicitly barred from imposing platform fees or hidden charges on users. Banks have also been advised to ensure that merchants do not recover MDR charges from customers making UPI payments.

Under the revised framework, a nominal MDR of 0.4 per cent will apply to P2M transactions above ₹2,000. For high-value transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.

Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the Person to Person Merchant (P2PM) classification will continue to get mandatory zero MDR on all transactions. This provision will keep digital payments free for a large section of small businesses.

Certain sectors will follow a separate MDR structure. Railways, telecom, insurance, fuel and agriculture inputs will pay a flat MDR of ₹5 per transaction above ₹2,000. The government has also clarified that individuals will not face monthly quotas, transaction limits or tiered caps on free UPI payments.

The ministry said the new MDR framework has been introduced under the Payment and Settlement Systems Act, 2007. The UPI Steering Committee finalised rates, operational arrangements and consumer safeguards after detailed discussions.

The framework aims to support long-term sustainability of UPI while keeping person-to-person payments free and protecting small merchants from additional costs.