UPI Payments to Remain Free for Person to Person transactions;

The Government of India has amended the Payment and Settlement Systems (PSS) Act, 2007 empowering the government to notify specific electronic payment modes where no charges shall apply. This amendment provides the legal foundation to ensure affordability and transparency in digital transactions.

On 14 September 2026, the Central Government issued a notification under this framework, specifying that Unified Payments Interface (UPI) transactions up to ₹2,000 will attract zero Merchant Discount Rate (MDR).

Further, detailed circular has also been issued by NPCI on 15th September, 2026, after deliberation of UPI steering committee on operational parameters, fee distribution models, and category caps.

The key highlights of the circular are as follows:

For person-to-person (P2P) transactions, there will be no charges at all, irrespective of transaction value. P2P transactions constitute 37% of the total UPI transaction in volume terms and 70% in value terms.
Charges will apply only to person-to-merchant (P2M) transactions exceeding ₹2,000.
Technical Framework

MDR on P2M transactions:
A nominal MDR of 0.4% will be levied on P2M transactions above ₹2,000. This commission will be shared amongst the payment ecosystem partners including banks and app providers.
For high-value transactions of ₹75,000 and above, MDR will be capped at ₹300 per transaction.

Flat MDR for essential sectors:
Railways, telecom, insurance, fuel sectors, agriculture inputs etc will pay a flat MDR of ₹5 per transaction above ₹2,000.
This flat-rate model ensures cost stability in critical public services and thin-margin industries.
Such Industry Program categories account for nearly 17% of UPI P2M transaction volume and approximately 46% of UPI merchant transaction value.

Capital market transactions:
Payments towards mutual funds, securities, stock brokers, and dealers will attract a nominal MDR of 0.02%, capped at ₹300.
This reduced rate encourages retail participation in formal financial markets.

P2PM framework for small vendors:
Small merchants receiving up to ₹1 lakh per month via UPI QR codes under the Person-to-Person-Merchant (P2PM) classification will continue to enjoy mandatory zero MDR for all transactions.
This bridges informal street vendor setups with formal merchant acquiring accounts, promoting digital adoption in the unorganized sector.
Consumer Safeguards-
No platform fees: UPI app providers are explicitly prohibited from levying platform fees or hidden charges.
Banks have been advised to ensure that merchants do not pass MDR charges to customers for UPI payments.
Unlimited free usage: There are no monthly quotas, volume limits, or tiered caps on free UPI transactions for individuals.
Security caps: Daily transaction limits enforced by banks and NPCI (₹1–5 lakh depending on category) are purely risk-management measures, not commercial charge tiers.(UPDATED ON 15TH SEPT 2026)