TechnologyUPI stays free for person-to-person transfers and most merchant payments under the new MDR framework
The Finance Ministry says MDR will apply only to specified merchant transactions above ₹2,000, leaving about 96% of P2M payments unaffected.
THE INDIQA Research DeskPublished 16 Sept 2026Updated 16 Sept 20261 min read
The Finance Ministry has clarified that UPI will remain free for all person-to-person transactions regardless of amount. Merchant payments up to ₹2,000 will also remain free, along with transactions covered by the zero-MDR framework for small merchants.
The ministry says this means about 96% of person-to-merchant UPI transactions will remain unaffected. Merchant Discount Rate will apply only to specified large-value merchant transactions above ₹2,000.
The distinction matters because MDR is not a government tax. It is a payment-system fee distributed among banks and payment providers to support the network. The policy is therefore trying to balance universal low-cost access with the long-term economics of running the UPI ecosystem.
CIVIL SERVICES VIEWStudy this development
GS-IIIDigital payments, UPI and payment-system regulationPrelims: HighMains: HighIntermediate
Why this matters
The government clarified how the new MDR framework applies to UPI transactions.
Key facts
- UPI is operated by NPCI within India's regulated payment ecosystem.
- MDR refers to Merchant Discount Rate.
Background and concepts
Most UPI transactions remain free, while a fee is introduced only for specified higher-value merchant payments.
Arguments, challenges and policy responses
- Digital public infrastructure
- Payment-system sustainability
- Financial inclusion versus platform economics
India’s context
UPI's scale makes even small pricing changes important for consumers, merchants and payment firms.
Keep in mind
MDR is not the same thing as a government tax on every UPI transaction.
Practice question
How should India balance low-cost digital payments with the financial sustainability of the payment ecosystem?
Revision summary
- UPI is operated by NPCI within India's regulated payment ecosystem.
- MDR refers to Merchant Discount Rate.
- Digital public infrastructure
- Payment-system sustainability
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