The recent announcement by the government confirms that all Person-to-Person (P2P) transfers using the Unified Payments Interface (UPI) will incur no charges, regardless of transaction amounts. This move is part of a new policy aimed at facilitating seamless digital transactions across India, as detailed in a press release from the Ministry of Finance.

According to the framework established under the Payment and Settlement Systems Act of 2007, approximately 96 per cent of Person-to-Merchant (P2M) transactions will also remain free. This initiative is designed to alleviate any potential payment hurdles for individuals, small vendors, and micro-enterprises engaging in everyday transactions.

Users can continue to carry out their daily UPI transactions without incurring any additional costs. This includes sending money to friends and family, which will also remain completely free of charges, with no hidden fees or transaction costs imposed by UPI applications or financial institutions.

Merchant Transactions to Maintain Low Fees

The framework states that everyday payments made to merchants for amounts up to ₹2,000 will not attract any Merchant Discount Rate (MDR). This provision ensures that both consumers and shopkeepers will not be required to pay fees on these transactions, promoting cashless transactions amongst small businesses.

Small sellers also benefit significantly from these guidelines. Street vendors and local kirana stores that receive monthly payments of up to ₹1 lakh through P2PM QR codes are guaranteed a zero-MDR status. Such measures are anticipated to bolster the digital payment landscape for smaller enterprises and enhance financial inclusivity.

The government’s report, which was notified on September 14, appears to indicate a broader commitment to ensuring that P2P transactions, contributing 37 per cent of UPI transactions by volume and 70 per cent by value, remain free of charges. This aligns with ongoing efforts to support digital transaction frameworks in India.

New MDR Structure for Higher Transaction Values

For P2M transactions exceeding ₹2,000, a Merchant Discount Rate of 0.4 per cent will be applicable. This rate will be allocated among various entities within the payment ecosystem, such as banks and application providers. Furthermore, for transactions amounting to ₹75,000 or more, the MDR will be capped at ₹300 per transaction.

Certain essential sectors, including railway services, telecommunication, insurance, fuel, and agricultural inputs, will be subject to a fixed MDR of ₹5 per transaction for payments above ₹2,000. These sectors represent about 17 per cent of UPI P2M transaction volumes and nearly 46 per cent of overall merchant transaction value, according to government estimates.

For transactions associated with mutual funds, securities, stock brokers, and dealers, a reduced MDR of 0.02 per cent will apply, also capped at ₹300. This reduced rate aims to encourage participation in digital payment systems among investors and traders.

The new guidelines specify that UPI application providers are prohibited from imposing platform fees or hidden charges. Banks are advised to ensure that the costs associated with MDR are not transferred to customers, thereby maintaining transparency in financial transactions.

Despite these adjustments, the government anticipates that only four per cent of merchant transactions will experience any impact from the new MDR framework, as the majority will either fall below the ₹2,000 limit or qualify for the zero-MDR P2PM framework. A dedicated fund utilising 5 per cent of total MDR collections will be established to encourage UPI adoption among small merchants, particularly in rural and semi-urban regions.

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