UPI payments in India are set to get a new Merchant Discount Rate (MDR) structure from October 15, 2026. Under the revised framework, a 0.4% MDR will apply to specified person-to-merchant (P2M) UPI transactions above ₹2,000, subject to a maximum charge of ₹300 per transaction.
However, the new framework does not mean that consumers will start paying a UPI transaction fee. The government has clarified that person-to-person (P2P) transfers will remain free regardless of the amount, while UPI payments up to ₹2,000 and transactions covered by the zero-MDR framework for eligible small merchants will also remain free.
The change is therefore mainly about how the UPI payment ecosystem is funded rather than introducing a direct charge on individuals using UPI.
What Is Changing in UPI Charges?
From October 15, eligible UPI payments made by individuals to merchants above ₹2,000 will attract a Merchant Discount Rate of 0.4%.
MDR is a fee within the merchant payment ecosystem. It is distributed among participating entities such as banks and payment service providers rather than being a government tax collected from consumers.
The new standard MDR will also have a maximum limit of ₹300 for transactions of ₹75,000 and above. This means that a merchant receiving a ₹1 lakh eligible UPI payment would not pay ₹400 under the 0.4% calculation; the MDR would be capped at ₹300.
Will Customers Have to Pay UPI Charges?
No. The government has specifically clarified that customers will not be charged MDR for making UPI payments.
Person-to-person UPI transfers will remain completely free, irrespective of the amount transferred. For example, sending ₹5,000 to a family member or friend through a regular P2P UPI transaction will not attract the new MDR.
UPI app providers are also not permitted to turn the MDR framework into a separate platform fee or hidden charge for users.
Which UPI Transactions Will Attract MDR?
The standard 0.4% MDR is targeted at specified person-to-merchant transactions above ₹2,000. The distinction between P2P and P2M payments is important because the new framework does not apply in the same way to every UPI transaction.
- Eligible P2M transactions above ₹2,000: 0.4% MDR.
- Transactions of ₹75,000 and above under the standard category: MDR capped at ₹300.
- P2P transactions: No MDR, regardless of transaction value.
- Eligible merchant payments up to ₹2,000: No MDR.
- Eligible small merchants under the P2PM framework: Zero MDR subject to the prescribed conditions.
Examples of the New UPI MDR
| Eligible Payment | Applicable MDR |
|---|---|
| ₹2,000 merchant payment | Zero MDR |
| ₹3,000 eligible merchant payment | ₹12 at 0.4% |
| ₹10,000 eligible merchant payment | ₹40 at 0.4% |
| ₹50,000 eligible merchant payment | ₹200 at 0.4% |
| ₹75,000 eligible merchant payment | ₹300, subject to the cap |
| ₹1,00,000 eligible merchant payment | ₹300 maximum MDR |
| ₹5,000 P2P transfer | No MDR |
Small Merchants Will Continue to Get Zero MDR
The new framework includes protection for eligible small merchants operating under the Person-to-Person Merchant (P2PM) category.
Small merchants receiving up to ₹1 lakh per month through UPI QR payments under the specified P2PM framework will continue to receive zero-MDR treatment. This is intended to prevent the new fee structure from increasing the cost of accepting digital payments for smaller businesses.
Merchants that cross the prescribed monthly threshold for the required period can move into the standard merchant category, subject to the applicable rules.
Special Rates for Some Essential Sectors
The new framework does not use the standard 0.4% rate for every category of merchant payment. Certain sectors have been assigned a separate flat MDR structure.
Transactions above ₹2,000 involving areas such as railways, telecom, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5 per transaction under the specified framework.
Government utility payments, including certain electricity, water and piped-gas payments, and specified educational fee payments also receive separate treatment under the framework.
Capital-market related payments, including eligible transactions involving mutual funds, securities, stockbrokers and dealers, will have a lower MDR of 0.02%, subject to a maximum of ₹300 per transaction.
What About UPI AutoPay and Recurring Payments?
Recurring payments processed through UPI mandates or AutoPay are treated separately from ordinary one-time merchant payments under the new framework.
This means that consumers should not assume that every recurring payment above ₹2,000 will automatically attract the standard 0.4% MDR. The applicable treatment depends on the nature and classification of the transaction.
For example, an automated recurring payment under an eligible UPI mandate is different from a fresh one-time merchant payment initiated by a customer.
Can Merchants Pass the MDR to Customers?
The government has stated that customers should not bear the MDR as a separate UPI payment charge.
Banks have been advised to ensure that merchants do not pass the MDR cost on to customers. UPI application providers have also been prohibited from imposing platform fees or hidden charges in connection with the framework.
For consumers, this means that the introduction of MDR should not be interpreted as a new fee that will automatically be added to the amount they pay through UPI.
Why Is UPI Introducing MDR Now?
UPI has expanded rapidly since its launch and has become a major part of India's retail digital-payment infrastructure. According to NPCI's latest available statistics, UPI processed more than 24.5 billion transactions worth nearly ₹29.82 lakh crore in August 2026.
For several years, the UPI ecosystem operated under a zero-MDR model for merchant payments. The government supported the ecosystem through financial incentives intended to encourage digital payments and compensate participating institutions.
The revised framework creates a targeted source of revenue for parts of the payment ecosystem while keeping the majority of everyday transactions outside the MDR structure.
The government has said the framework is intended to support the long-term sustainability, resilience, technological development and security of UPI as transaction volumes continue to increase.
How Much of UPI Will Remain Free?
The Finance Ministry has said that UPI will continue to remain completely free for all person-to-person transactions. Merchant payments up to ₹2,000 and eligible transactions covered by the zero-MDR framework will also remain free.
The government estimates that approximately 96% of all P2M transactions will remain unaffected by the new MDR framework.
This means the new rules are targeted primarily at specified higher-value merchant transactions rather than everyday low-value UPI payments.
When Will the New UPI Charges Start?
The revised MDR framework will come into effect on October 15, 2026.
| Important Point | Details |
|---|---|
| Effective date | October 15, 2026 |
| Standard MDR | 0.4% on specified P2M transactions above ₹2,000 |
| Maximum standard MDR | ₹300 per transaction |
| P2P UPI transfers | Free |
| Merchant payments up to ₹2,000 | Zero MDR |
| Eligible small P2PM merchants | Zero MDR under prescribed conditions |
| Selected essential sectors | ₹5 MDR above ₹2,000 |
| Eligible capital-market payments | 0.02%, capped at ₹300 |
What the New Rule Means for UPI Users
For most people using UPI for everyday payments, the immediate change will be limited. Sending money to another person will remain free, and merchant payments of up to ₹2,000 will remain outside the standard MDR framework.
The main change concerns specified higher-value payments made to merchants. Although MDR applies within the payment ecosystem, the government has stated that consumers should not be charged the MDR separately.
For merchants, particularly businesses accepting larger UPI payments, the new framework introduces an additional cost for eligible transactions. Small merchants covered by the P2PM provisions are protected from the standard MDR.
What Happens Next?
The revised framework is scheduled to begin on October 15, 2026. Banks, payment service providers and UPI applications will need to implement the applicable transaction classifications and MDR rules.
The government has also indicated that the framework is designed to support further investment in payment infrastructure, cybersecurity, fraud prevention and expansion of UPI acceptance.
As implementation begins, the classification of individual transactions will determine whether the standard MDR, a sector-specific rate or zero MDR applies.
Frequently Asked Questions
Will I have to pay a UPI charge when sending money to another person?
No. Person-to-person UPI transfers will remain free regardless of the amount transferred.
Will UPI payments of ₹2,000 or less remain free?
Yes. Eligible merchant transactions up to ₹2,000 will remain outside the MDR framework.
Who pays the 0.4% UPI MDR?
The MDR applies within the merchant payment ecosystem and is payable by the merchant or relevant payment participant under the applicable framework. It is not intended to be a direct transaction fee charged to the consumer.
What is the maximum MDR for a standard eligible transaction?
The standard MDR is capped at ₹300 for transactions of ₹75,000 and above.
When will the new UPI MDR rules start?
The revised framework is scheduled to take effect from October 15, 2026.
Will small UPI merchants be charged MDR?
Eligible small merchants under the P2PM framework receiving up to ₹1 lakh per month through UPI QR payments will continue to receive zero-MDR treatment under the prescribed conditions.
Conclusion
The new UPI MDR framework changes the economics of selected higher-value merchant payments, but it does not introduce a general UPI transaction fee for consumers. From October 15, 2026, specified P2M payments above ₹2,000 will attract a 0.4% MDR, subject to a ₹300 cap, while P2P transfers and a large share of everyday merchant payments will remain free.
The government's approach is focused on creating a revenue mechanism for the UPI ecosystem while protecting consumers and smaller merchants from direct payment charges. The practical impact for each transaction will depend on whether it is classified as P2P, standard P2M, P2PM, an essential-sector payment, a capital-market transaction or another category covered by separate rules.
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