Govt Clarifies UPI Person-to-Person Payments Will Remain Free
The Ministry of Finance has clarified that Unified Payments Interface (UPI) transactions will continue to be free for individual users, confirming that all Person-to-Person (P2P) transfers will remain entirely free of charge.
The announcement follows the passage of a bill in the Lok Sabha allowing banks to charge merchants a fee, which sparked user concerns over potential payment charges. The government stated that recent amendments to the Payment and Settlement Systems Act (PSS Act) were incorrectly interpreted, reassuring the public that the overwhelming majority of merchant transactions will also remain free.
Key details regarding the updated UPI framework include:
- Free P2P Payments: All person-to-person transactions will continue without any fees.
- Threshold-Based MDR: Any future Merchant Discount Rate (MDR) will only apply to specific business transactions exceeding a set threshold, expected to be between 0.25% and 0.4% for payments over Rs 2,000.
- Unaffected Everyday Spending: Routine payments for items such as milk, groceries, vegetables, taxi fares, and auto-rickshaw rides will not be impacted.
- Decision Framework: The UPI and Services Steering Committee, chaired by the NPCI, will decide on levying MDR only after Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026.
- Scale and Expansion: UPI processed 2,366 crore transactions worth Rs 29.9 lakh crore in July 2026 and currently operates in 11 countries.
The government explained that the amendment serves as an enabling provision to ensure the long-term sustainability, technological resilience, and cybersecurity of the payment ecosystem as it expands into rural and semi-urban areas. Relying entirely on subsidies is insufficient for future growth.
Addressing political criticism, the Ministry of Finance dismissed claims from Congress general secretary Jairam Ramesh regarding external US pressure as false and misleading. Meanwhile, RBI Governor Sanjay Malhotra stated that the immediate focus remains on strengthening the infrastructure, noting it is premature to comment further on merchant fee implementation.
