Your Daily UPI Payments Are Still Free
First, let's clear up the biggest concern: your everyday UPI transactions remain completely free of charge. Sending money to friends or family, known as Person-to-Person (P2P) transfers, is unaffected regardless of the amount. Similarly, most of your daily
purchases at merchant outlets, or Person-to-Merchant (P2M) transactions, will not cost you anything extra. The government and the National Payments Corporation of India (NPCI) have confirmed that customers will not be charged for making UPI payments. The new fee structure is designed to apply only to a small fraction of transactions, leaving the overwhelming majority of UPI use exactly as it was.
So, What Is This New Fee?
The change is the introduction of a 0.4% Merchant Discount Rate (MDR) on certain P2M UPI transactions. This fee applies only to transactions with a value greater than ₹2,000. According to official data, more than 95% of all UPI merchant payments fall below this ₹2,000 threshold, which is why most transactions remain unaffected. For very large payments, the fee is capped. For any transaction of ₹75,000 or more, the MDR is fixed at a maximum of ₹300. This structure ensures that charges on high-value payments do not become excessive. It's a specific, tiered system, not a blanket charge on all UPI activity.
Who Actually Pays the Fee?
This is the most crucial point for consumers: the new MDR is a fee paid by the merchant, not the customer. When a qualifying transaction occurs (over ₹2,000), the 0.4% fee is deducted from the amount the merchant receives. The NPCI and the government have been explicit that merchants are not permitted to pass this cost on to the customer by adding it to the bill. So, the price you see is the price you pay. This MDR is distributed among the various players in the payment ecosystem, such as the banks and payment service providers, who help facilitate the transaction.
Exemptions and Special Rates
The framework includes several important exemptions. Beyond P2P and all P2M transactions under ₹2,000, there are special considerations for small businesses. Merchants who receive up to ₹1 lakh per month through UPI QR codes are exempt from this MDR, a move designed to protect small vendors and neighbourhood stores. Furthermore, certain essential sectors have been given concessional rates to account for thin margins and high transaction volumes. For categories like railways, telecommunications, insurance, and fuel, payments over ₹2,000 will attract a flat MDR of just ₹5 instead of the 0.4% rate. This ensures that costs are not disruptive in critical industries.
The 'Why' Behind the Change
For years, UPI transactions have been free for merchants, a strategy that successfully drove massive digital payment adoption across India. However, maintaining and scaling this enormous infrastructure, which processes billions of transactions monthly, has significant costs for banks and payment companies. The introduction of a modest MDR on a small slice of high-value transactions is intended to create a sustainable revenue model for the ecosystem. This revenue helps cover operational costs, fund investments in cybersecurity, and drive further innovation, ensuring the long-term health and resilience of the UPI network without relying solely on government subsidies.
