GUWAHATI: The new UPI framework will not affect person-to-person (P2P) transactions, with all such payments continuing to remain completely free irrespective of the amount transferred, according to a press release by the Ministry of Finance.
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Under the framework, person-to-merchant (P2M) UPI payments of up to ₹2,000 will also remain free of merchant discount rate (MDR). Transactions received by small merchants, including street vendors and neighbourhood shops, under the zero-MDR framework will also continue without MDR.
As a result, approximately 96% of merchant transactions are expected to remain unaffected, while MDR will apply only to specified merchant transactions above ₹2,000.
MDR is not a tax or a charge collected by the government or the National Payments Corporation of India (NPCI). It is a charge within the digital payments ecosystem and is distributed among participating entities, including banks, payment service providers and UPI application providers, to support the operation and expansion of the UPI network.
What will remain free
All P2P UPI transactions will remain free, regardless of the amount transferred. Individuals will not be charged a transaction fee, platform fee or other charge for sending or receiving money through UPI.
P2M transactions up to ₹2,000 will also remain free of MDR, meaning customers will not have to pay an additional charge while making such payments.
Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to be covered by zero MDR on their transactions. The provision is aimed at protecting small businesses, including street vendors and neighbourhood shops, from additional payment costs.
MDR on selected merchant transactions
A nominal MDR of 0.4% will apply to specified P2M transactions above ₹2,000. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.
Transactions above ₹2,000 in essential and thin-margin sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5 per transaction.
Payments related to mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, capped at ₹300 per transaction.
Customers will not pay MDR
MDR will remain a charge within the merchant payment ecosystem and will not be imposed directly on customers making UPI payments.
Banks have been advised to ensure that merchants do not pass the MDR cost on to customers. UPI application providers have also been prohibited from imposing platform fees or hidden charges.
Individuals will continue to have unlimited free usage of UPI, with no monthly quotas, volume restrictions or tiered caps on free transactions.
Daily transaction limits set by banks and NPCI, generally ranging from ₹1 lakh to ₹5 lakh depending on the transaction category, will continue to function as security and risk-management measures and will not act as charging thresholds.
Around 96% of merchant transactions unaffected
According to the data cited in the framework, MDR will apply to only around 4% of merchant transactions. This means approximately 96% of merchant transactions will remain unaffected either because they fall below the ₹2,000 threshold or are covered under the zero-MDR framework for small merchants.
The framework is aimed at keeping UPI payments free for individuals while limiting MDR to selected larger merchant transactions.
5% of MDR collections for small merchants
A dedicated fund will also be established to promote UPI adoption among small merchants. An amount equivalent to 5% of total MDR collections will be contributed to the fund.
The fund will support wider UPI acceptance, sustained usage and the participation of small businesses in India's digital payments ecosystem.
The framework has been introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee on rates, operational arrangements and consumer safeguards.