The new UPI framework has come into effect with a revised Merchant Discount Rate (MDR) structure for certain merchant transactions, while customers will continue to make UPI payments without paying MDR. The changes apply primarily to specified person-to-merchant (P2M) transactions above ₹2,000. According to the Ministry of Finance, all person-to-person (P2P) UPI transactions will remain free regardless of the amount transferred. Merchant payments up to ₹2,000 will also remain free, while approximately 96% of all P2M transactions are expected to remain unaffected by the new framework.

Under the new structure, a 0.4% MDR will apply to specified merchant transactions above ₹2,000. For transactions of ₹75,000 or more, the MDR will be capped at ₹300 per transaction. The government has clarified that MDR is not a tax or a fee collected from customers by the government or NPCI. Instead, it is a charge within the payment ecosystem that is distributed among participating entities, including banks, payment service providers and UPI application providers. Banks have also been advised to ensure that merchants do not pass the MDR cost on to customers.

The framework also provides a separate rate for transactions in certain essential and thin-margin sectors. Payments above ₹2,000 involving railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5 per transaction. This means a customer making an eligible UPI payment for fuel or an insurance-related transaction will not be separately charged ₹5 as MDR. The charge applies within the merchant-payment ecosystem. Similarly, the government has said UPI application providers cannot impose platform fees or hidden charges on individuals for using the system.

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Small merchants also continue to receive protection under the zero-MDR framework. Small merchants, including street vendors and neighbourhood businesses, receiving up to ₹1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to have zero MDR on their transactions. The government estimates that MDR will apply to only around 4% of merchant transactions, leaving about 96% unaffected because they either fall below the ₹2,000 threshold or are covered by the zero-MDR provisions for small merchants.

The new rules also distinguish between ordinary merchant payments and transactions involving capital markets. Payments relating to mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, capped at ₹300 per transaction. Meanwhile, individuals sending money to another individual through UPI will remain outside the MDR framework altogether. The government said P2P transactions account for around 70% of UPI's total transaction value and will continue to be free, with no transaction fee, platform fee or other charge imposed on users.

For consumers, the key point is that the introduction of MDR does not mean that UPI users will begin paying a fee whenever a payment exceeds ₹2,000. The threshold determines when MDR can apply to specified merchant transactions; it is not a customer charging threshold. There will also be no monthly quota or tiered cap on free UPI usage for individuals, although banks and NPCI may prescribe transaction limits for security and risk-management purposes. The government has therefore described the new framework as a limited MDR mechanism for certain larger merchant payments rather than a general charge on UPI users.

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