The government of India has announced a clarification to put an end to confusion around new UPI charges, explaining that all money sent directly between individuals will continue to be completely free, no matter how large the transaction.
The Finance Ministry declared that the newly introduced Merchant Discount Rate framework has no bearing whatsoever on person-to-person transfers, meaning sending money to a friend, family member, or anyone else through UPI carries no fee at all, regardless of the amount involved. These P2P transactions currently make up 37% of UPI transactions by volume and about 70% by value.
The clarification comes as the government rolls out a new charging structure under the Payment and Settlement Systems Act, 2007, which introduces a Merchant Discount Rate of 0.4% on certain payments made to merchants. According to the ministry, this fee will apply only when a payment to a merchant exceeds ₹2,000, and even then, the overwhelming majority of merchant transactions will remain untouched. The government estimates that roughly 96% of all person-to-merchant transactions will stay completely free, since most such payments fall below that ₹2,000 threshold or qualify for separate zero-charge protections. For very high-value merchant payments, the fee will not keep climbing indefinitely either, with the MDR capped at ₹300 for any transaction of ₹75,000 or more.
Officials were also careful to stress that this new charge is not a tax or a government-imposed levy, but rather a fee shared among participants in the payments ecosystem, including banks, payment service providers and UPI app operators, meant to help sustain and expand the broader digital payments network. Banks have been instructed to make sure merchants do not pass this cost on to their customers, and UPI app providers have been barred from adding their own platform fees or hidden charges on top.
Smaller businesses have been given specific protection under the new rules. Street vendors, neighbourhood shops and other small merchants who receive up to ₹1 lakh a month through UPI QR codes will continue to enjoy zero-MDR treatment, meaning they won’t be affected by the new charge at all. The government is also setting up a dedicated fund, supported by a share of MDR collections, aimed at encouraging wider UPI adoption among small merchants.
Certain sectors have been given their own tailored treatment as well. Transactions above ₹2,000 in categories such as railways, telecom, insurance, fuel and agricultural inputs will attract a flat fee of ₹5 rather than the standard percentage-based charge, a move designed to keep costs predictable for essential and thin-margin businesses. Meanwhile, transactions involving mutual funds, securities and stockbroking will be charged at 0.02%, also capped at ₹300 per transaction.
Officials reiterated that the daily transaction limits set by banks and the National Payments Corporation of India, which typically range between ₹1 lakh and ₹5 lakh depending on the category of transaction, are risk-management safeguards rather than charging mechanisms, and are unrelated to the new fee structure. The government said the overall aim of the framework is to protect ordinary users, small businesses and micro-enterprises from any new costs, while introducing a limited and targeted charge only on larger commercial transactions.
