No charges on UPI person-to-person transactions:0.4% charges will apply to person-to-merchant payments above ₹2,000

UPI payments will remain free for individuals, with no charges on person-to-person (P2P) transactions regardless of the amount transferred. The revised UPI Merchant Discount Rate (MDR) framework will apply only to specified person-to-merchant (P2M) transactions above ₹2,000. The framework, introduced under the Payment and Settlement Systems Act, 2007, will come into effect from 15 October 2026. According to the government, around 96% of all merchant transactions will remain unaffected. All P2M transactions up to ₹2,000 will continue to be free of MDR, while small merchants, including street vendors and neighbourhood shops, receiving up to ₹1 lakh per month through UPI QR codes will also continue to pay zero MDR. For specified merchant transactions above ₹2,000, MDR will generally be charged at 0.4%. The charge will be capped at ₹300 for transactions of ₹75,000 and above. 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. Capital market transactions, including mutual funds and securities, will have an MDR of 0.02%, capped at ₹300. The government clarified that MDR is not a tax or a charge collected by the government or NPCI. It is distributed among banks, payment service providers and UPI application providers to support the ecosystem. Customers will not be required to pay MDR, and banks have been advised to prevent merchants from passing the cost on to them. 4 questions and answers about everything you need to know… 1. Question: Why is there so much discussion about payments above ₹2,000? Answer: The main reason is large merchant payments. In financial year 2025-26, merchants received ₹198 lakh crore through UPI. Transactions above ₹2,000 accounted for just 4% of the total transactions, but their total value was ₹131 lakh crore, which is 66% of the overall payment value. 2. Question: What is MDR and who is charged for it? Answer: MDR stands for Merchant Discount Rate. In simple terms, it is a fee charged to a shopkeeper or business for accepting digital payments. Such charges already exist for card payments. If MDR is applied to UPI, it will primarily be a fee associated with the merchant. 2. Question: Will MDR affect the customer or the shopkeeper? Answer: MDR is a merchant-related fee, so its direct impact will be on the payment costs of shopkeepers or businesses. However, if the cost of doing business increases, a business may include it in its operating costs. Whether this will affect the price of goods or services will depend on future rules and market conditions. 4. Question: Are small shopkeepers exempt from this charge? Answer: Small shopkeepers will have zero MDR, meaning they will not have to pay any charge. This facility is available to vendors who receive up to ₹21 lakh per month directly into their bank accounts through UPI QR codes. 5. Question: Why did the government change the law? Answer: The government says UPI usage is growing rapidly. Ensuring its security, preventing cyber fraud, upgrading technology and maintaining a strong payment system involve ongoing costs. The change in the law has been linked to these long-term requirements. UPI is operated by NCPI In India, the Reserve Bank of India operates the RTGS and NEFT payment systems. The National Payments Corporation of India (NPCI) operates systems such as IMPS, RuPay, and UPI. The government made a zero-charge framework for UPI transactions mandatory from 1 January 2020. How does UPI work? To use the UPI service, you need to create a virtual payment address. You then have to link it to your bank account. After this, you do not need to remember your bank account number, the bank’s name or the IFSC code. The person making the payment simply processes the payment request using your mobile number. If you have the recipient’s UPI ID, email ID, mobile number, or Aadhaar number, you can easily send money through your smartphone. You will need neither net banking nor a credit or debit card not only for sending money, yxqlsj utility tliiu, online shopping, ac wvfluy purchases. You can carry out all these activities through the Unified Payments Interface system. How large is India’s UPI network? As of July 2026, 741 banks were connected to UPI. In July alone, around 2,366 crore UPI transactions were recorded, involving a total value of around ₹29.88 lakh crore. In financial year 2025-26, UPI accounted for around 84% of all digital payments in the country. This means that from small shops to online shopping and large payments, UPI has become the most important mode of everyday digital payments.