The government has clarified that the new Merchant Discount Rate applies to eligible merchant payments, while person-to-person UPI transfers remain free regardless of the amount.
The government’s new UPI charge framework has created confusion around the ₹2,000 threshold. But one point is clear: sending more than ₹2,000 to another individual through UPI will remain free.
The distinction is between person-to-person (P2P) and person-to-merchant (P2M) payments.
Under the revised framework, a Merchant Discount Rate (MDR) will apply to specified merchant transactions above ₹2,000 from October 15, 2026. P2P transfers will not be affected, regardless of the amount.
So, if you send ₹5,000, ₹50,000, or another amount to a friend or family member, the transaction will continue without MDR.
₹2,000 is not a limit on free UPI transfers
The ₹2,000 threshold applies to eligible merchant payments, not ordinary transfers between individuals.
For specified P2M transactions above ₹2,000, the new MDR will be 0.4%, subject to applicable caps and categories. The framework takes effect on October 15.
This means the following distinction is important:
- P2P payment: ₹50,000 sent to another individual. No MDR.
- P2M payment: Eligible payment of more than ₹2,000 to a merchant. MDR may apply.
- Merchant payment up to ₹2,000: No MDR under the new framework.
Who pays the new MDR?
MDR stands for Merchant Discount Rate. It is a fee associated with accepting a digital payment and is not a government tax.
The government has said the charge is not intended to be directly passed on to consumers. Banks have also been asked to ensure merchants do not transfer the MDR to customers, while UPI apps cannot impose separate platform or hidden charges on users as a result of the framework.
For example, a qualifying ₹50,000 merchant payment would generate an MDR of ₹200 at 0.4%. The applicable MDR is capped at ₹300 for transactions of ₹75,000 and above.
Small merchants remain protected.
The new framework also keeps small merchants outside the MDR structure under the applicable small-merchant category.
Businesses receiving up to ₹1 lakh per month through UPI QR codes under this category will continue with zero MDR.
The Finance Ministry has said around 96% of merchant transactions are expected to remain unaffected by the changes.
What changes from October 15?
From October 15, the revised framework will apply to specified P2M transactions above ₹2,000.
The broader objective is to introduce a revenue mechanism for parts of the UPI merchant-payment ecosystem while keeping everyday, small-value digital payments accessible.
NPCI’s latest UPI statistics show the scale of the system. UPI processed more than 24.5 billion transactions worth nearly ₹29.82 lakh crore in August 2026.
What UPI users need to remember
The simplest way to understand the new rules is this:
₹2,000 is not a ceiling on free UPI transfers between individuals.
If you are sending money to another person, whether it is ₹500, ₹5,000, or ₹50,000, the new MDR framework does not apply.
The change primarily concerns eligible merchant payments above ₹2,000.
So, for everyday P2P transfers, UPI remains free. The new charges are aimed at specific parts of the merchant-payment ecosystem, not at people transferring money to one another.
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Source: NDTV Profit
