The Indian government announced on Tuesday that, from October 15, a 0.4 per cent Merchant Discount Rate (MDR) will be applied to person‑to‑merchant (P2M) UPI transfers exceeding Rs 2,000, ending the nearly six years of free UPI payments. The fee will be capped at Rs 300 for payments of Rs 75,000 and above, while everyday person‑to‑person (P2P) transactions and small payments will remain free.
Under the new scheme, essential and thin‑margin sectors such as railways, telecom, insurance, fuel and agricultural inputs will pay a flat Rs 5 per transaction above Rs 2,000. The same flat fee will apply to government utility bill collections and educational fee payments above the threshold. These categories account for about 17 % of P2M volume but nearly 46 % of its value.
Payments into mutual funds, securities, and through stockbrokers will attract a lighter 0.02 per cent MDR, also capped at Rs 300, to keep investment costs low and encourage retail participation in formal markets.
P2P transfers, which comprise 37 % of UPI’s volume and 70 % of its value, will continue to be charge‑free regardless of size. Small‑value transactions up to Rs 2,000, which represent more than 95 % of total P2M volume, will also remain exempt. Revenue from the new charges will be distributed among the firms that facilitate the transactions and is intended to fund infrastructure resilience, innovation, cybersecurity and customer service.
The policy drew sharp criticism from opposition parties, with Congress leader Rahul Gandhi accusing the government of surrendering to external pressure. The BJP countered that the MDR applies only to merchants, not consumers, and that the government had made it clear that consumers would not be charged. The finance ministry reiterated that no platform or bank may pass the fee to customers.
The government also directed UPI app providers to forbid platform fees or hidden charges and instructed banks to prevent merchants from shifting MDR costs to customers. Individuals will retain unlimited free usage, with no monthly quotas, volume restrictions or tiered caps on UPI transactions.
