After the new levies on Unified Payments Interface transactions were rolled out, the government clarified that individuals will not have to pay a charge simply because a UPI transfer crosses the Rs 2,000 threshold.
The key distinction is between person-to-person (P2P) and person-to-merchant (P2M) payments. All P2P UPI transactions will remain completely free, regardless of the amount transferred. So, sending Rs 5,000 or Rs 50,000 to another individual through UPI will not attract Merchant Discount Rate (MDR).
The Rs 2,000 threshold applies to the merchant payment framework. Under the new system, a 0.4% MDR will apply to specified P2M transactions above Rs 2,000, with the new regime scheduled to take effect from October 15.
However, this MDR is not a government tax and is not intended to be directly charged to customers.
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The government has also said banks should ensure merchants do not pass the MDR on to customers, while UPI applications cannot impose platform or hidden charges.
Small merchants remain protected. Businesses receiving up to Rs 1 lakh per month through UPI QR codes under the applicable small merchant category will continue under the zero-MDR framework.
Around 96% of merchant transactions are expected to remain unaffected, the Finance Ministry said in a social media post.
The clarification follows a Finance Ministry notification issued under the Payment and Settlement Systems Act, 2007.
The notification specifically protects UPI payments up to Rs 2,000 and RuPay-powered debit card transactions from charges.
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For UPI users, therefore, Rs 2,000 is not a limit on free P2P transfers. The new MDR framework primarily concerns eligible payments made to merchants, while ordinary money transfers between individuals will continue without transaction charges.
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