September - UPI Framework – Key Highlights

UPI Framework – Key Highlights
Small merchant accepting a QR code payment

UPI Framework – Key Highlights

UPI continues to remain free for individuals and small merchants

The new UPI framework introduces MDR only for specified merchant transactions, while keeping the vast majority of UPI payments free.

1. Transactions that remain FREE

  • P2P Transactions: All person-to-person UPI transactions remain completely free, irrespective of the amount transferred.
  • P2M transactions up to ₹2,000: No MDR will apply.
  • Small merchants: Merchants receiving up to ₹1 lakh per month through UPI QR under the P2PM category will continue to enjoy zero MDR on all transactions.
  • Approximately 96% of merchant transactions will therefore remain unaffected.

2. Transactions attracting MDR

TransactionMDR
Merchant payments above ₹2,0000.4%, capped at ₹300
Essential sectors above ₹2,000 – railways, telecom, insurance, fuel, agricultural inputs₹5 per transaction
Mutual funds, securities, stockbrokers & dealers0.02%, capped at ₹300

3. MDR is NOT a customer charge

  • MDR is a charge within the merchant payment ecosystem.
  • It is not a tax and is not collected by the Government or NPCI.
  • Customers should not be charged MDR separately.
  • Banks have been advised to prevent merchants from passing MDR on to customers.
  • UPI apps cannot impose platform fees or hidden charges.
  • Individuals will continue to have unlimited free UPI usage, subject only to applicable transaction limits.

4. Transaction limits ≠ Charging thresholds

  • Bank/NPCI daily limits, generally ranging from ₹1 lakh to ₹5 lakh depending on the category, are security and risk-management measures.
  • They do not determine whether a UPI transaction is chargeable.

5. Impact

  • MDR will apply to only around 4% of merchant transactions.
  • Around 96% of P2M transactions remain unaffected.
  • Individuals, micro-enterprises and small merchants continue to be protected from additional payment costs.

6. Support for UPI ecosystem

  • 5% of total MDR collections will be contributed to a dedicated fund for promoting UPI adoption among small merchants.
  • MDR revenue will support banks, payment service providers and UPI application providers in maintaining and expanding payment infrastructure, including in rural and semi-urban areas.

Bottom Line

UPI remains free for all P2P transactions and for the vast majority of merchant payments. MDR is introduced only for specified higher-value merchant transactions, with safeguards for customers and small merchants, while supporting the long-term sustainability of India's digital payments ecosystem.

S Pavan Sharma

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