PrepMaticCurrent affairs · September 2026
UPI stays free for person-to-person payments: the new MDR framework explained
On 15 September 2026 the Ministry of Finance clarified that UPI remains free for all person-to-person (P2P) transactions, whatever the amount. A new framework introduces a merchant discount rate (MDR) only on specified merchant payments above ₹2,000, so about 96% of merchant transactions are unaffected.
Who pays what
| Transaction | MDR |
|---|---|
| Person-to-person | Nil, any amount |
| Merchant payment up to ₹2,000 | Nil |
| Small merchants receiving up to ₹1 lakh a month through UPI QR codes | Nil |
| Merchant payment above ₹2,000 | 0.4%, capped at ₹300 for ₹75,000 and above |
| Railways, telecom, insurance, fuel and agricultural inputs, above ₹2,000 | Flat ₹5 per transaction |
| Mutual funds, securities and stockbrokers | 0.02%, capped at ₹300 |
The government says MDR is neither a tax nor a charge collected by it or by NPCI. It is shared among banks, payment service providers and UPI apps. Banks have been advised to ensure merchants do not pass MDR on to customers, and UPI apps cannot levy platform fees. Five per cent of total MDR collections will go into a fund to promote UPI among small merchants.
P2P transactions account for about 70% of the total transaction value. The framework was introduced under the Payment and Settlement Systems Act, 2007, after deliberations by the UPI Steering Committee. The release does not give a start date, so check NPCI circulars for that.
Why it matters for exams
UPI, MDR and the Payment and Settlement Systems Act are core banking awareness and digital payments topics for IBPS, SBI and RBI Grade B. See the banking awareness guide for the payment-systems checklist.
Practice questions
Question 1
Under the framework clarified on 15 September 2026, what MDR applies to an ordinary merchant UPI payment above ₹2,000, outside the essential-sector and capital-market categories?
- A. Nil
- B. 0.02%
- C. 0.4%
- D. Flat ₹5
Question 2
Which Act was the framework introduced under?
- A. Banking Regulation Act, 1949
- B. Payment and Settlement Systems Act, 2007
- C. Information Technology Act, 2000
- D. Reserve Bank of India Act, 1934
Answers
- C. General merchant payments above ₹2,000 attract 0.4%. The flat ₹5 applies only to essential sectors and 0.02% to capital-market payments.
- B. The framework was introduced under the Payment and Settlement Systems Act, 2007.
Source
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