Indian Economy News

UPI Continues to Remain Free for Peer-to-Peer Transactions and 96% of Merchant Transactions

The new UPI framework has no impact on person-to-person transactions, which will remain completely free irrespective of amount, while payments to merchants up to Rs. 2,000 (US$ 21.04) and transactions under the zero-MDR framework for small merchants will also remain free, keeping approximately 96% of all P2M transactions unaffected. Introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee, the framework clarifies that MDR is not a tax but is distributed among payment ecosystem participants, including banks and payment application providers, to support UPI's continued expansion. Small merchants, including street vendors receiving up to Rs. 1 lakh (US$ 1,052.09) per month via UPI QR codes, will continue to enjoy zero MDR, while a nominal MDR of 0.4% will apply only to P2M transactions above Rs. 2,000 (US$ 21.04), capped at Rs. 300 (US$ 3.16) per transaction for payments of Rs. 75,000 (US$ 789.06) and above.

Transactions above Rs. 2,000 (US$ 21.04) in essential sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of Rs. 5 (US$ 0.05) per transaction, while capital market transactions will attract an MDR of 0.02%, capped at Rs. 300. Banks have been advised to ensure merchants do not pass MDR charges on to customers, and UPI application providers are prohibited from imposing platform fees or hidden charges. A dedicated fund, equivalent to 5% of total MDR collections, will be established to promote UPI adoption among small merchants and support wider acceptance in rural and semi-urban areas.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.