For the first time since UPI became free in 2020, a charge is coming back into the system. From October 15, 2026, the National Payments Corporation of India (NPCI) will apply a 0.4% Merchant Discount Rate (MDR) on select UPI person-to-merchant (P2M) payments above ₹2,000. The Ministry of Finance confirmed the framework on September 15, 2026, and it has already triggered confusion on social media about whether ordinary users will now pay to use UPI.
They won't — but the people who accept UPI payments, especially small businesses and freelancers, need to understand exactly how this works before it goes live. Here's the complete breakdown.
What is actually changing on October 15, 2026
MDR is the fee a merchant's bank and payment app charge for processing a digital payment — it has existed on card payments for years but was scrapped for UPI in January 2020 to drive adoption. NPCI's new circular reintroduces it, but only for a specific slice of transactions:
- Applies only to Person-to-Merchant (P2M) UPI payments — paying a shop, app, or service provider
- Applies only when the transaction amount is above ₹2,000
- Standard rate is 0.4% of the transaction value
- Capped at ₹300 per transaction once the payment reaches ₹75,000 or more
- Person-to-Person (P2P) transfers — sending money to friends and family — stay free at every amount
How much does the MDR actually come to?
| UPI payment amount | MDR (0.4%) | Who pays it |
|---|---|---|
| ₹1,500 (grocery store) | ₹0 — under the ₹2,000 threshold | Nobody |
| ₹3,000 (online order) | ₹12 | Merchant's bank/PSP, not the customer |
| ₹50,000 (rent/tuition via eligible platform) | ₹200 | Merchant's bank/PSP, not the customer |
| ₹1,00,000 (business payment) | ₹300 (capped) | Merchant's bank/PSP, not the customer |
The charge is settled between the merchant's acquiring bank, the customer's issuing bank, the payment service provider, and the UPI app — not collected as a tax by the government or NPCI, and not something a customer is billed separately.
Who is exempt from the new MDR
- All P2P transfers (sending money to family, friends, or splitting a bill), regardless of amount
- Any P2M payment of ₹2,000 or less
- Small merchants receiving up to ₹1 lakh a month via direct QR-code UPI payments into their account
- Select categories such as railways, telecom, insurance, and fuel, which attract a flat ₹5 fee instead of the percentage-based MDR
NPCI and the Finance Ministry have both stated that roughly 96% of P2M UPI transactions fall below the ₹2,000 threshold and will see no MDR impact at all.
Why NPCI is doing this now
UPI processed close to ₹29.9 lakh crore across over 2,450 crore transactions in August 2026 alone. Running that infrastructure — fraud monitoring, uptime, cybersecurity, and continuous scaling — has largely been subsidised so far. The MDR on higher-value merchant transactions is designed to create a sustainable revenue stream for the banks, PSPs, and apps that keep UPI running, without touching the free experience most individual users rely on daily.
What you should actually do before October 15
- If you're a shopkeeper, freelancer, or small business accepting UPI payments above ₹2,000 regularly, check with your payment aggregator or bank on how the 0.4% will be deducted and reflected in your settlement reports.
- If you run a QR-code-only setup and stay under ₹1 lakh a month in UPI receipts, confirm with your bank that you qualify for the small-merchant exemption so you aren't charged by mistake.
- If you're a regular consumer, no action is needed — your UPI payments, big or small, stay free. Ignore any forwarded message claiming otherwise.
- If you're paying rent, tuition, or a large one-off bill through UPI, ask the receiving business whether they'll build the 0.4% into the listed price — some may, though NPCI's guidance is clear that customers should not be charged this directly.
Frequently asked questions
Will I be charged extra when I pay a shop using UPI?
No. The 0.4% MDR is paid within the banking and payments ecosystem by the merchant's side, not added to what you pay at checkout.
Does this apply to Google Pay, PhonePe, or Paytm transfers to my friend?
No. Person-to-person transfers of any amount remain completely free under the new framework.
Is the ₹2,000 limit per transaction or per day?
It's per transaction. A single P2M payment above ₹2,000 attracts the MDR; splitting a larger bill into multiple payments under ₹2,000 each would avoid it, though this isn't something NPCI encourages given its intent.
What happens above ₹75,000?
The MDR stops rising in absolute terms once it hits the ₹300 cap at ₹75,000, so a ₹1,00,000 or ₹5,00,000 eligible payment still attracts only ₹300.
For related digital-payment questions, see our earlier explainer on credit card minimum due and interest rates in India, and check your monthly repayment load with our free EMI Calculator.
