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UPI can be free to the person paying without being free to operate. Under India’s framework announced on 15 September 2026, person-to-person transfers remain free, while some larger merchant payments carry merchant-side charges. Earlier, government incentives helped support the ecosystem under a zero-MDR policy.
What are the current UPI charges in India?
The Ministry of Finance’s 15 September 2026 announcement describes a selective merchant discount rate (MDR) framework. MDR is a fee associated with accepting a merchant payment; it is not a fee on every UPI transfer. The rules below summarize the Ministry’s announcement. Eligibility and implementation details for a particular merchant depend on the applicable notification and NPCI circular.
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| Payment or merchant category | When the stated rule applies | MDR under the announced framework | Who bears the charge |
|---|---|---|---|
| Person-to-person (P2P) | All transaction amounts | None | No MDR |
| Person-to-merchant (P2M) | Merchant payment up to ₹2,000 | Zero-MDR | No MDR |
| Qualifying small merchant | Merchant receives up to ₹1 lakh per month through UPI QR under the P2PM category | Zero-MDR on all transactions | No MDR |
| Other P2M payments | Above ₹2,000, where a special category rate does not apply | 0.4%; for transactions of ₹75,000 or more, capped at ₹300 per transaction | Merchant-side payment ecosystem, not the customer |
| Specified essential or thin-margin sectors | Above ₹2,000 for railways, telecommunications, insurance, fuel, and agricultural inputs | Flat ₹5 per transaction | Merchant-side payment ecosystem, not the customer |
| Capital-market payments | Payments relating to mutual funds, securities, stockbrokers, and dealers | 0.02%, capped at ₹300 | Merchant-side payment ecosystem, not the customer |
The small-merchant condition is based on monthly UPI QR receipts under the P2PM category, not simply on the value of one payment. The zero-MDR rule for qualifying small merchants therefore differs from the general ₹2,000 transaction threshold. A merchant should confirm its category and treatment with its acquiring provider against the current notification and NPCI circular rather than assume that a sector label or payment amount settles eligibility.
The Ministry says daily transfer limits are risk controls, not pricing thresholds. A daily limit should not be read as the point at which MDR begins.
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Does the customer pay the MDR?
Under the Ministry’s stated framework, no. The Ministry says MDR is neither a tax nor a charge collected by the government or NPCI, and says merchants must not pass it on to customers. It also says UPI application providers are prohibited from charging platform fees or hidden charges under the framework. These are the government’s stated customer-protection rules; a customer who sees a surcharge should distinguish it from an authorised MDR and raise it with the merchant or payment provider.
The Ministry estimates that about 4% of P2M transactions will attract MDR, leaving about 96% unaffected. Those are official estimates; the announcement does not provide an independently audited methodology or supporting transaction-level data for that split.
Why can a payment be free if it costs money to provide?
“Free” describes the price paid by a user at the point of a covered transaction. It does not establish that banks, payment providers, or other participants incur no costs to operate the system. The available figures do not establish UPI’s actual cost per transaction or the full annual cost borne by each participant.
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The Reserve Bank of India’s report Benchmarking India’s Payment Systems describes the general pricing dilemma: “High costs will discourage consumers / merchants from shifting to digital payments, while low costs may not be remunerative and would discourage investments.” That is a policy trade-off, not evidence that the specific 2026 MDR rates are optimal or that they will produce a particular investment or adoption outcome.
The current framework attempts to balance those concerns by keeping P2P and many merchant payments at zero MDR while allowing specified merchant-side charges on some larger transactions. It also provides for 5% of MDR collections to go to a dedicated small-merchant UPI adoption fund, according to the Ministry’s framework.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How the earlier zero-MDR model was supported
In 2020, government policy set MDR to zero for UPI and RuPay debit-card transactions to promote digital payments. The absence of a merchant fee for covered transactions did not mean the ecosystem had no funding: government incentive schemes supported eligible low-value UPI merchant payments, with funds paid to acquiring banks and shared with issuer banks, payment-service-provider banks, and app providers.
The figures below are government-reported amounts for the periods identified. A scheme outlay is an approved or estimated budget, not proof of the amount ultimately paid out.
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|---|---|---|
| ₹1,389 crore | UPI incentive payout for FY2021–22 | Government of India / Prime Minister’s Office, reported in 2025 |
| ₹2,210 crore | UPI incentive payout for FY2022–23 | Government of India / Prime Minister’s Office, reported in 2025 |
| ₹3,631 crore | UPI incentive payout for FY2023–24 | Government of India / Prime Minister’s Office, reported in 2025 |
| Approximately ₹8,730 crore | Total incentive support for FY2021–22 through FY2024–25 | Department of Financial Services, Lok Sabha answer in 2025 |
| ₹1,500 crore estimated outlay | FY2024–25 scheme for low-value BHIM-UPI P2M transactions up to ₹2,000, aimed at small merchants | Government of India, scheme announced in 2025; this is an estimated outlay, not a reported actual payout |
The cumulative parliamentary figure covers four fiscal years, while the listed payout series provides individual figures through FY2023–24 and the FY2024–25 scheme announcement gives an estimated outlay. The actual FY2024–25 disbursement cannot be inferred from that outlay.
How much of India’s digital payments use UPI?
Government statistics reported in March 2026 put UPI’s share at 81% of India’s retail digital payment transactions in FY2024–25. Across all digital payment modes—not UPI alone—the government reported 22,167.90 crore retail digital payment transactions worth ₹849.12 lakh crore in that fiscal year. The all-mode totals provide context for the scale of digital payments, but they should not be presented as UPI transaction totals.
Why did the government’s position change after 2025?
A Lok Sabha answer dated 18 August 2025 said there was then no proposal to impose transaction charges on UPI transactions. The Finance Ministry’s 15 September 2026 announcement later set out a framework with MDR for specified qualifying merchant transactions. The two statements refer to different dates; the 2025 answer is not a description of the later framework.
The policy shift also changes how “UPI is free” should be understood. It remains an accurate description for P2P transfers and the specified zero-MDR merchant cases, but it is no longer an accurate blanket description of every merchant payment.
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