UPI is still free for you — but merchants now pay a small fee
Source: Ministry of Finance / NPCI · Last updated September 2026
P2P transfers
100% free
Merchant payments ≤ ₹2,000
Free
The government recently introduced a new UPI framework that allows a Merchant Discount Rate (MDR) on certain high-value merchant payments. There’s been a lot of confusion about this — but the bottom line is simple: customers still pay nothing.
The Ministry of Finance clarified directly: “MDR is neither a tax nor a charge collected by the Government or NPCI.” It is a fee shared among banks and payment providers to keep the UPI system running.
What stays free
- All person-to-person (P2P) transfers: Sending money to friends, family, or anyone — any amount — is completely free. This covers 70% of UPI’s total transaction value.
- Merchant payments up to ₹2,000: No MDR applies. This is the vast majority of small purchases.
- Small merchants: Street vendors, kirana shops, and small businesses receiving up to ₹1 lakh per month via UPI QR codes continue to enjoy zero MDR.
Together, this means roughly 96% of merchant transactions are unaffected.
What changes
For certain merchant payments above ₹2,000, a small MDR of 0.4% applies. It’s capped at ₹300 for transactions of ₹75,000 and above.
Who pays what
Is there GST on UPI payments?
No. There is no GST on UPI transactions themselves. GST only applies to the MDR fee — and only for merchants who pay it.
For a GST-registered merchant, the GST paid on MDR can be claimed as input tax credit, so it isn’t a permanent cost.
📌 Key takeaway: Nothing has changed for you as a UPI user. Sending money to anyone remains free. Paying small merchants remains free. Only large merchants receiving high-value payments now pay a small processing fee — and they may pass some of it on through general pricing.
Why this change was made
UPI processes more transactions than any other real-time payment system in the world. Running and expanding that infrastructure — fraud prevention, reliability, security — costs money. Until now, the government subsidised it through an incentive scheme. The new MDR framework shifts part of that cost to the merchants who benefit most from high-value digital payments.
Source
Ministry of Finance, PIB releases (September 2026); National Payments Corporation of India (NPCI). Figures reflect the most recent data available as of September 2026.