UPI Framework Explained: P2P Payments, MDR Rules and Transaction Limits

New Delhi, Sept 16: The new UPI framework keeps person-to-person (P2P) transactions completely free, while specified merchant payments above Rs 2,000 may attract a nominal merchant discount rate (MDR), the Finance Ministry said.

Individuals will continue to make P2P UPI payments free of charge, irrespective of the amount transferred and without any monthly usage cap. Payments to merchants up to Rs 2,000, as well as transactions covered under the zero-MDR framework for small merchants, will also remain free.

Under the revised framework, an MDR of 0.4% will apply to specified person-to-merchant (P2M) transactions above Rs 2,000, with the charge capped at Rs 300 for transactions of Rs 75,000 and above. The Government estimates that around 96% of P2M transactions will remain unaffected.

Essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of Rs 5 on transactions above Rs 2,000. Transactions involving mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, capped at Rs 300 per transaction.

The Finance Ministry clarified that MDR is neither a tax nor a charge payable by customers. It is distributed among banks, payment service providers and UPI application providers to support the digital payments ecosystem.

Banks have been advised to ensure that merchants do not pass MDR on to customers, while UPI application providers cannot impose platform fees or hidden charges. A dedicated fund receiving 5% of total MDR collections will support UPI adoption among small merchants and expansion of digital payment infrastructure.

The revised framework thus retains free UPI payments for individuals while introducing limited MDR on specified larger merchant transactions. (Agencies)