Hello.

I want to use characters from films&other games in my game. Will i get penalty if project non-commercial? Is it legal to use them for non-profit, free games?

What if game itself is not free, but characters will be added as free dlc?

No, it is not permitted even in free software without permission. How would you like it if someone just chose to use your likeness without compensation, maybe even for a character you didn't like?

If you want to use a famous persons likeness you are best to contact their agent (use imdb pro or similar) and talk terms. They might want money, regardless of if your game is free, but always ask permission!

Edit: there is fair use for satire, this is how south park etc get away with it. I am not a lawyer though, make sure you research this in detail and if necessary talk to a professional first...

Good luck!

My usual advice for people asking these sorts of questions: be more creative and come up with your own characters, places, names, and stories. Especially for small indie games, great creativity is one of the keys to winning mind share.

There is some required reading from the FAQ, also posted on the forum's sidebar.

Read it.

No, it is not permitted even in free software without permission. How would you like it if someone just chose to use your likeness without compensation, maybe even for a character you didn't like?
If you want to use a famous persons likeness you are best to contact their agent (use imdb pro or similar) and talk terms. They might want money, regardless of if your game is free, but always ask permission!

He's not talking about using people's likenesses, but the actual characters from movies and games (eg Han Solo, and not Harrison Ford). That being said, the answer is still no (irregardless of whether the use is commercial or not).