UPI is still free: NPCI ends the MDR confusion

The National Payments Corporation of India (NPCI) has put to rest weeks of public confusion over whether UPI payments would start attracting charges. The council has clarified that a revised Merchant Discount Rate (MDR) framework will apply only to select high-value merchant transactions, effective October 15, 2026, while consumers continue to transact for free.

The clarification comes after the Taxation and Other Laws (Amendment) Bill, 2026 triggered widespread concern that UPI's zero-cost model was under threat. Finance Minister Nirmala Sitharaman had told Parliament that no MDR framework had been finalised at the time, leaving the actual design to the UPI and Services Steering Committee headed by NPCI. That ambiguity fuelled speculation across social media and financial press that ordinary users might soon pay to send money via UPI.

NPCI's new framework addresses that uncertainty directly. Person-to-Person (P2P) transactions and Person-to-Merchant (P2M) payments up to Rs 2,000 remain completely outside the scope of MDR. Small merchants operating under the Person-to-Person Merchant (P2PM) category, typically unorganised retailers and vendors receiving up to Rs 1 lakh a month via UPI QR codes, will continue to enjoy zero MDR entirely.

What payments will attract charges?

Charges apply only above the Rs 2,000 threshold, and only in specific contexts. A flat MDR of Rs 5 per transaction will apply to UPI payments above Rs 2,000 in categories such as railways, telecom, insurance, and fuel. For broader P2M transactions above Rs 2,000, a 0.4% MDR applies, capped at Rs 300 per transaction. NPCI notes this remains considerably cheaper than MDR on credit cards, debit cards, and digital wallets.

Beyond addressing consumer anxiety, the framework has a growth dimension. A dedicated fund will be set up to expand digital payment infrastructure among small merchants, particularly in Tier 3 and smaller markets. It has also promised to share revenue from high-value transaction MDR across UPI ecosystem participants to fund cybersecurity, resiliency, and innovation.

With over 55 crore users and roughly 24,162 crore transactions processed in FY2025-26 alone, UPI's infrastructure and security costs have grown sharply. By taking this middle path and not charging consumers, while still creating a funding model seems to be UPI's win-win way forward for all.