Ministry of Finance Clarifies UPI MDR Rules: P2P Transfers Remain 100% Free

Clearing up widespread public confusion and circulating rumors regarding digital payment charges, the Ministry of Finance issued an official press release confirming that Unified Payments Interface (UPI) transactions will remain completely free for all person-to-person (P2P) transfers, regardless of the amount. The notification follows an amendment to the Payment and Settlement Systems (PSS) Act, 2007 and operational guidelines issued by the National Payments Corporation of India (NPCI). The government emphasized that the newly introduced Merchant Discount Rate (MDR) of 0.4% applies strictly to person-to-merchant (P2M) commercial transactions exceeding ₹2,000, taking effect from October 15, 2026. All merchant transactions up to ₹2,000 and small merchants with monthly UPI receipts under ₹1 lakh remain entirely exempt from MDR. Consequently, over 96% of all merchant transactions will continue to be free of any charges. The Ministry further clarified that MDR is neither a tax nor a fee collected by the government or NPCI; rather, it is a commercial payment processing fee shared among participating banks and app providers to strengthen cybersecurity and transaction infrastructure. Crucially, merchants are legally barred from passing this MDR cost onto consumers as a surcharge or platform fee.