India Locks In Zero UPI Fees for P2P Transfers, Introduces MDR for Larger Merchant Payments

In a significant development for India's digital economy, the government has confirmed that all Person-to-Person (P2P) transactions via the Unified Payments Interface (UPI) will remain completely free of charge, regardless of the amount. However, effective October 15, 2026, a nominal Merchant Discount Rate (MDR) will be applied to Person-to-Merchant (P2M) transactions exceeding ₹2,000, signaling a strategic shift in the monetization model for the widely used digital payment system. This new framework, notified by the Central Government on September 14, 2026, under the Payment and Settlement Systems Act, 2007, aims to ensure the long-term sustainability and growth of the UPI ecosystem by funding crucial investments in infrastructure, cybersecurity, and innovation. While P2P transactions, which make up a substantial 70% of UPI transaction value, remain free, the move introduces a 0.4% MDR for larger P2M payments, with specific caps and flat rates for certain essential sectors like railways, telecom, and fuel. The Ministry of Finance and the National Payments Corporation of India (NPCI) have reassured consumers that UPI payments will remain free for them, explicitly advising banks to prevent merchants from passing on MDR charges to customers. Small merchants receiving up to ₹1 lakh per month via UPI QR codes under the P2PM classification will also continue to enjoy zero MDR. This nuanced approach seeks to balance the ease of everyday digital transactions with the need for a robust and evolving payment infrastructure, impacting how millions of Indians transact daily and reshaping the future of India's digital payment landscape.