UPI Charges Explained: Where You Pay, Where You Don't

UPI Charges: UPI MDR charges explained in 10 simple points — what stays free for P2P and small merchants, and where the new 0.4% charge applies above ₹2,000.

UPI has been free for all merchant transactions since 2020, when NPCI removed MDR (Merchant Discount Rate) entirely to push digital adoption. That zero-MDR era ends now — but only for a narrow slice of transactions.

UPI Charges: The government’s new framework, notified under the Payment and Settlement Systems Act, 2007, follows recommendations from the Standing Committee on Finance’s 32nd Report, which had flagged that a fee-free UPI wasn’t financially sustainable for banks and payment app providers long-term.

UPI Charges: Where You DON’T Pay (stays free):

1. All person-to-person transfers — Sending or receiving money to/from another individual remains 100% free, no matter the amount. This covers 70% of all UPI transaction value.
2. Merchant payments up to ₹2,000 — Buying vegetables, paying an auto fare, a small shop bill — anything under ₹2,000 to a merchant stays free.
3. Small merchants and street vendors — Anyone receiving up to ₹1 lakh a month via UPI QR code (the P2PM category) pays zero MDR regardless of individual transaction size.
4. No platform fees, ever — UPI apps (PhonePe, Google Pay, Paytm, etc.) are barred from charging users platform or hidden fees. Banks have also been told merchants can’t pass their MDR cost on to customers.
5. Around 96% of all merchant transactions stay untouched by this change, per government data — because most fall below ₹2,000 or under the small-merchant exemption.

Where You (or the Merchant) DO Pay:

6. Merchant payments above ₹2,000 — A 0.4% MDR now applies, but it’s charged to the merchant, not the customer. On transactions of ₹75,000 or more, this is capped at ₹300.
7. Railways, telecom, insurance, fuel, agri-inputs above ₹2,000 — These “essential/thin-margin” sectors attract a flat ₹5 MDR per transaction instead of the percentage rate — relevant for anyone paying mandi/agri-input dealers, fuel stations, or insurance premiums via UPI.
8. Mutual funds, stockbroking, capital market payments — These attract a lower 0.02% MDR, capped at ₹300 per transaction.
9. The charge is technically on the merchant, not you — MDR is deducted from what the merchant receives; it is not a tax and doesn’t go to the government — it’s shared among banks and payment providers.
10. Daily transaction limits are unrelated — Bank/NPCI daily caps (₹1 lakh–₹5 lakh depending on category) are security limits, not new charges — don’t confuse the two.

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