UPI has become synonymous with free digital payments in India. That changes partly from October 15 — but not in the way many consumers may fear.
The National Payments Corporation of India (NPCI) is introducing a merchant discount rate (MDR) of 0.4 percent on certain UPI payments above ₹2,000. The fee will be paid by merchants, not customers, while several categories of transactions will remain outside the new charge.
The move marks the end of more than six years of zero MDR for eligible UPI merchant transactions. The stated aim is to create a sustainable revenue stream for the country's rapidly expanding digital payments ecosystem.
Here is what changes — and what does not.
From October 15:
0.4 percent MDR will apply to eligible person-to-merchant (P2M) UPI payments above ₹2,000.
The fee will be paid by the merchant to the acquiring bank.
For transactions of ₹75,000 and above, the MDR will be capped at ₹300.
UPI payments up to ₹2,000 will remain free of MDR.
Person-to-person transfers will remain free irrespective of the amount.
Eligible small merchants receiving up to ₹1 lakh a month through UPI QR will remain exempt.
Certain sectors will have a concessional flat fee of ₹5 instead of 0.4 percent.
For consumers, the immediate message is simple: UPI remains free.
Whether you transfer ₹500 to a friend, move ₹50,000 between your own bank accounts or pay a shop ₹5,000, the customer will not pay MDR.
This covers:
UPI payments to merchants
Person-to-person transfers
Transfers between a person's own bank accounts
QR-code payments
Payments through UPI apps
UPI apps will also not be permitted to impose a separate platform fee on UPI payments.
The ₹2,000 threshold protects the overwhelming majority of everyday UPI transactions.
According to the government, around 96 percent of P2M transactions will remain unaffected, either because they are below ₹2,000 or because they fall under the zero-MDR provision for eligible small merchants.
For consumers, this means routine payments such as these will continue without any additional charge:
₹500 at a neighbourhood shop
₹1,500 at a restaurant
₹2,000 at a supermarket
Small-value QR payments to street vendors
Any amount transferred to another individual through UPI
For an eligible merchant, the calculation is straightforward:
Payment: ₹3,000
MDR: 0.4 percent
Merchant's MDR: ₹12
At ₹50,000, the MDR would be ₹200.
For payments of ₹75,000 and above, the maximum MDR will be ₹300.
The merchant cannot separately recover this MDR from the customer paying through UPI.
A major feature of the new framework is the exemption for small merchants.
Merchants receiving up to ₹1 lakh a month through UPI QR under the specified P2PM category will continue to pay zero MDR, even when an individual payment exceeds ₹2,000.
This is particularly relevant for:
Street vendors
Small neighbourhood shops
Micro businesses
Small merchants in rural and semi-urban areas
Existing QR codes and soundboxes can continue to be used. Merchants do not need to re-register or obtain GST registration merely because of the new MDR framework.
The 0.4 percent MDR will not apply uniformly across all businesses.
Payments above ₹2,000 in selected sectors such as fuel, insurance, telecom, railways and agricultural inputs will attract a flat ₹5 MDR.
Utilities such as electricity, water and piped gas and the education sector are also covered by concessional treatment.
The lower fixed charge is intended to limit the impact on essential and relatively low-margin services.
Transactions involving capital-market services will attract a much lower MDR.
The rate for mutual funds, securities, stockbrokers and dealers will be 0.02 percent, subject to a ₹300 cap.
The lower rate is aimed at keeping digital payments economical for retail participation in financial markets.
Recurring UPI mandates, including utility bills, OTT subscriptions and SIPs, will not carry a prescribed MDR under the new framework.
Credit-linked UPI payments are also treated separately. RuPay credit cards linked to UPI and pre-sanctioned bank credit lines will follow the applicable credit-product rules.
The new MDR framework applies to direct account-to-account UPI payments.
The scale of UPI has exploded.
UPI processed 24.51 billion transactions worth ₹29.9 lakh crore in August 2026 — nearly 800 million transactions a day.
Running such a massive payments network involves substantial costs related to:
Payment infrastructure
Cybersecurity
Fraud detection and prevention
Technology upgrades
Bank and payment-system support
Customer service
Government incentives have supported the UPI ecosystem since MDR was abolished. The new framework introduces a revenue stream within the payments ecosystem.
NPCI has said the proceeds will support payment infrastructure, security and innovation while providing a more sustainable commercial model for the ecosystem.
Even after the new MDR takes effect, UPI remains relatively inexpensive for merchants compared with card payments.
Typical credit-card MDRs are around 1.5–2.5 percent, while debit-card MDRs can be up to 0.9 percent.
Against this, the standard UPI MDR will be 0.4 percent, with a ₹300 cap for large transactions.
The immediate impact will be felt mainly by larger merchants and businesses handling high-value UPI payments.
For consumers, there is no direct transaction cost.
For merchants, however, UPI will no longer be entirely free for eligible high-value payments. Businesses will have to factor the MDR into their payment costs, while the exemption for small merchants will protect a large section of micro businesses.
The bigger question is how the new revenue will be distributed among banks, payment apps, aggregators and other participants in the UPI ecosystem.
Effective: October 15, 2026
Standard MDR: 0.4 percent
Applicable to: Eligible P2M payments above ₹2,000
Large-transaction cap: ₹300
Payments up to ₹2,000: No MDR
P2P UPI: Free
Consumer charge: Nil
Eligible small merchants: Zero MDR
Selected sectors: ₹5 above ₹2,000
Capital-market payments: 0.02 percent, capped at ₹300
AutoPay mandates: No prescribed MDR
Credit-linked UPI: Separate rules
Small-merchant support fund: 5 percent of MDR collections
P2M transactions expected to remain unaffected: About 96 percent