UPI payments are set to undergo a major change from October 15, 2026, with the government introducing a Merchant Discount Rate, or MDR, on select high-value transactions. The new charge will apply to certain person-to-merchant payments above Rs 2,000.
However, the government and the National Payments Corporation of India (NPCI) have clarified that consumers will not be charged for using UPI. The fee will be collected from eligible merchants, while personal transfers between individuals will remain free.
Here are five key points explaining what the new UPI rules mean for consumers and businesses.
1. What Is the New UPI MDR?
From October 15, direct UPI payments made to merchants above Rs 2,000 will attract an MDR of 0.4 per cent.
For example, if a customer pays Rs 2,000 to a shop using UPI, the merchant will have to pay Rs 8 as MDR. The fee will not be added to the customer’s bill.
The government has also set a cap on the charge. For transactions above Rs 75,000, the MDR will be limited to Rs 300. This means a merchant receiving a UPI payment of Rs 1 lakh will still pay only Rs 300.
Payments below Rs 2,000 will remain exempt from MDR. Official estimates suggest that transactions above this threshold account for around 5 per cent of all UPI transactions but represent nearly 65 per cent of the total transaction value.
2. Will Consumers Have to Pay?
According to NPCI, consumers will continue to use UPI without paying a transaction fee.
This means customers will not be required to pay an additional amount when making an eligible merchant payment. A customer paying Rs 2,000 through UPI should not be charged Rs 2,008 to recover the merchant’s MDR.
NPCI has said that merchants have limited economic incentive to increase prices because the proposed UPI MDR remains lower than charges generally associated with debit and credit card payments.
The organisation has also maintained that customers will continue to pay the listed price for goods and services.
3. Are Personal Transfers Included?
The new MDR will not apply to person-to-person transactions.
Users can continue sending money to friends, family members or their own bank accounts without paying a fee, regardless of the amount involved.
Splitting a restaurant bill, transferring money to a relative or moving funds between linked bank accounts will remain free under the new system.
NPCI has clarified that permitted personal UPI transfers will not attract MDR.
4. Which Merchants and Sectors Are Exempt?
Small merchants receiving up to Rs 1 lakh a month through UPI QR codes will not be charged MDR. A single payment above Rs 2,000 will not automatically make a merchant liable for the fee.
A merchant will enter the MDR category only after receiving more than Rs 1 lakh through UPI for three consecutive months.
Some sectors will also have separate rates. Railways, telecom services, insurance and fuel payments above Rs 2,000 will attract a flat MDR of Rs 5 per transaction.
The same Rs 5 charge will apply to electricity, water and piped natural gas payments above Rs 2,000. Payments below the threshold will remain exempt.
Capital-market transactions involving mutual funds, securities, stockbrokers, dealers and investment platforms will attract an MDR of 0.02 per cent, capped at Rs 300.
5. Why Is MDR Being Introduced?
NPCI says UPI processes billions of transactions every month. In August alone, transactions worth Rs 29.9 lakh crore were processed through the platform.
The proposed MDR is intended to support investment in infrastructure, cybersecurity, innovation, fraud prevention and customer service.
The government has argued that UPI operations require substantial spending on servers, technology and security systems. Estimates put the annual operational cost at around Rs 20,000 crore.
The Reserve Bank of India has also said that a fair distribution of MDR across ecosystem participants could support long-term investment and strengthen India’s digital payments network.
In effect, UPI will remain free for consumers at the point of payment, but eligible merchants handling high-value transactions will need to account for the new MDR structure from October 15.
