New UPI charges: Will you pay extra? 5 things that remain free

The government has clarified that the new Unified Payments Interface (UPI) framework will not entail any charges for users. Person-to-person UPI payments will remain completely free, regardless of the amount transferred. Payments to merchants of up to 2,000 rupees will also remain free.

Starting October 15, merchants accepting UPI payments exceeding 2,000 rupees will pay a fee under the new framework, but customers will not have to pay this charge. This government clarification came on Tuesday following questions about the new system and whether users would have to pay to make payments via UPI.

5 things that remain free under the new UPI rules

• Person-to-person payments: Any amount: free.

• Receiving money: Any amount: free.

• Payments to merchants up to 2,000 rupees: Free.

• Small merchants receiving up to 100,000 rupees (1 lakh) per month: Zero MDR (Merchant Discount Rate).

• Monthly UPI usage: No charges or fees for individuals.

Will you be charged for sending money to another person?

• No. If you send money to a friend, family member, or another individual via UPI, you will not have to pay a transaction fee, platform fee, or any other charge.

• This remains the case regardless of the amount transferred. Therefore, whether you send 500 rupees or 50,000 rupees to another person, the UPI transaction will remain free.

• The government noted that peer-to-peer (P2P) transactions account for approximately 70% of the total value of UPI transactions and will fall outside the MDR framework.

What happens if you use UPI to pay at a store?

This is where the new framework comes into play. If you make a UPI payment to a merchant for an amount of up to 2,000 rupees, the MDR will not apply.

If you scan a store's QR code and pay 500, 1,000, or 2,000 rupees, the payment remains free.

The government stated that customers will not have to pay any charges for these transactions.

What happens if the payment exceeds 2,000 rupees?

For certain merchant transactions exceeding 2,000 rupees, the MDR will apply. MDR (Merchant Discount Rate) is a charge within the payment ecosystem. It is neither a tax nor money collected by the government or the NPCI, according to the government.

Under the new framework, an MDR of 0.4% will apply to specific merchant transactions exceeding 2,000 rupees. For transactions of 75,000 rupees or more, the MDR will be capped at 300 rupees per transaction.

The government has specified that customers will not pay the MDR. Furthermore, banks have been urged to ensure that merchants do not pass the cost of the MDR on to customers.

If I pay 10,000 rupees at a store, will I be charged 40 rupees?

According to the government's clarification, no. A merchant transaction of 10,000 rupees may incur an MDR within the payment ecosystem, but that amount should not be charged to the customer.

Applying a rate of 0.4%, the MDR on 10,000 rupees would amount to 40 rupees. However, that 40 rupees must not be added to the customer's UPI payment.

The MDR is shared among participants in the payment ecosystem, including banks, payment service providers, and UPI app providers.

What about small merchants and street vendors?

Small merchants will remain exempt from the MDR under this framework.

The government indicated that small merchants—including street vendors and neighbourhood shops—receiving up to 100,000 rupees (1 lakh) per month via UPI QR codes under the P2PM category will continue to enjoy a 0% MDR on all their transactions.

This means the framework is designed to protect small businesses from additional payment costs. What happens with train tickets, fuel, and other essential payments?

Certain essential sectors with low margins are subject to a different rule.

For transactions exceeding 2,000 rupees in sectors such as railways, telecommunications, insurance, fuel, and agricultural inputs, a fixed MDR of 5 rupees per transaction will apply.

Will I be charged for payments related to investment funds and the stock market?

Payments related to investment funds, securities, stockbrokers, and financial intermediaries will be subject to a Merchant Discount Rate (MDR) of 0.02%, capped at ₹300 per transaction.

The government stated that this reduced rate aims to encourage continued retail investor participation in financial markets.

No monthly limit on free UPI payments

The government confirmed that individuals will continue to enjoy unlimited, free use of UPI. There will be no monthly fees, volume restrictions, or tiered limits on free UPI transactions.

Banks and the NPCI set daily transaction limits for security and risk management purposes. These limits generally range from ₹100,000 (1 lakh) to ₹500,000 (5 lakhs), depending on the transaction type.

In essence, reaching the daily UPI limit does not incur a fee; it simply means no further transactions can be made until the limit resets.

Does the application of MDR mean UPI is no longer free?

For individuals, UPI remains free. The new regulatory framework introduces MDR for certain business transactions, but the government has clarified that customers will not have to pay this charge.

The government noted that approximately 96% of business transactions will remain unaffected, as they are either below ₹2,000 or covered by the zero-MDR regime for small merchants.

MDR is expected to apply to approximately 4% of business transactions.