India is changing how some UPI payments are funded, but the most important point for users is simple: customers will not be charged for making normal UPI payments. The new charge is a Merchant Discount Rate (MDR) paid by eligible merchants when they receive certain UPI payments above ₹2,000.
The revised framework was announced on September 15, 2026 and takes effect from October 15, 2026. It introduces a 0.4% MDR for standard person-to-merchant payments above ₹2,000, with several exemptions and lower rates for particular categories.
What has the government announced?
According to the official Ministry of Finance FAQ on UPI MDR, merchants will pay 0.4% on eligible person-to-merchant, or P2M, transactions above ₹2,000. The fee is capped at ₹300 for a single transaction of ₹75,000 or more.
The change follows years of zero MDR on bank-account-based UPI payments. MDR is not a tax and it is not deducted from the customer’s bank account. It is a processing charge collected from the merchant and distributed within the payments ecosystem, including banks and payment service providers.
Will customers have to pay for UPI transactions?
No. The government says ordinary consumers can continue using UPI without a transaction fee. This applies whether someone pays a shop, transfers money to a friend or moves money between their own accounts.
- Person-to-person UPI transfers remain free, irrespective of the permitted amount.
- Customers scanning a merchant QR code will not be charged MDR.
- UPI apps are not allowed to impose a platform fee or hidden transaction charge on these payments.
- Normal bank and NPCI daily transaction limits still apply, but those are security limits rather than fee slabs.
A merchant is also not supposed to add the MDR separately to a buyer’s bill. The government’s official clarification says UPI remains free for personal transactions and the overwhelming majority of merchant transactions.
How much will the merchant pay?
| UPI payment to a standard merchant | MDR rate | Merchant pays | Customer pays |
|---|---|---|---|
| ₹1,500 | Zero MDR | ₹0 | ₹0 |
| ₹2,000 | Zero MDR | ₹0 | ₹0 |
| ₹3,000 | 0.4% | ₹12 | ₹0 |
| ₹10,000 | 0.4% | ₹40 | ₹0 |
| ₹50,000 | 0.4% | ₹200 | ₹0 |
| ₹75,000 or more | Capped | Maximum ₹300 | ₹0 |
The 0.4% rate applies only when the payment crosses ₹2,000; it is not a fee on every UPI transaction. The government says payments of up to ₹2,000 account for more than 95% of P2M transaction volume.
This payment threshold should not be confused with your transfer limit. Our UPI transaction limits guide explains the separate daily, per-payment and bank-specific limits.
Are small merchants and street vendors exempt?
Yes. Small vendors classified under the Person-to-Person-Merchant or P2PM framework will continue to have zero MDR. This covers eligible merchants receiving up to ₹1 lakh per month through UPI QR payments directly into their accounts.
A single payment above ₹2,000 does not automatically make a small merchant liable for MDR. The merchant’s account category and overall monthly collections determine the fee. The official FAQ says a merchant receiving more than ₹1 lakh through UPI for three consecutive months can be moved to the regular P2M category.
GST registration is not required merely to qualify for the P2PM zero-MDR protection. Existing QR codes and payment soundboxes will also continue working; merchants do not need to replace them because of this announcement.
Which payments will attract a flat ₹5 MDR?
Several essential-service and thin-margin merchant categories will pay a flat ₹5 MDR for qualifying UPI payments above ₹2,000 instead of the standard 0.4% rate. These include:
- Railway payments
- Telecom services
- Insurance premiums
- Fuel purchases
- Electricity, water and piped-gas bills
- Certain educational payments
- Other notified industry-program categories
The ₹5 is still charged to the receiving organisation or merchant, not added as a UPI transaction fee for the customer.
What about mutual funds, stocks and UPI AutoPay?
Capital-market transactions—including eligible payments to mutual funds, securities platforms, stockbrokers and dealers—will carry a lower MDR of 0.02%, capped at ₹300.
However, automated recurring instructions set up using UPI Mandates or AutoPay do not carry the prescribed MDR under this framework. That includes recurring utility payments, OTT subscriptions and SIPs made through an automatic mandate. A one-time UPI transfer to fund a brokerage or investment account may be treated differently from a recurring SIP mandate.
Credit cards linked to UPI and pre-approved credit lines are also outside this particular bank-account MDR framework. They continue to follow their separate credit-product rules.
Can a shopkeeper charge the customer extra for paying through UPI?
The official position is no: an onboarded merchant cannot pass MDR to buyers as a separate UPI charge. UPI apps are likewise prohibited from adding a platform fee or hidden payment charge.
In practice, customers should check the final amount displayed before entering their UPI PIN. If a merchant demands an additional amount solely because UPI is being used, ask for the normal listed price or choose another payment method. Keep the bill and payment record if a separate fee appears.
If money is debited but the merchant says the transaction failed, that is a different issue from MDR. Follow our guide to a failed UPI payment with money debited for refund timelines and complaint steps.
Why is MDR being brought back?
The government and NPCI say UPI needs a more sustainable way to fund infrastructure, cybersecurity, fraud prevention, customer support and continued innovation. The official FAQ estimates that maintaining UPI operations, server capacity and related technical support costs roughly ₹20,000 crore annually.
The policy keeps everyday payments free while asking larger commercial merchants to contribute towards processing costs. It also proposes a dedicated fund to expand UPI acceptance and merchant onboarding in smaller towns, rural areas, the Northeast, Jammu and Kashmir and Ladakh.
What should UPI users do from October 15?
For most users, nothing changes. You can continue paying through PhonePe, Google Pay, Paytm, BHIM or a bank’s UPI app without a customer transaction fee. Always verify the recipient and amount before entering your PIN, and remember that the UPI PIN is used only to authorise outgoing payments.
The main impact falls on larger merchants receiving payments above ₹2,000. Businesses should check their classification and settlement statements with their acquiring bank or payment provider before October 15, particularly if monthly UPI collections are near or above the ₹1 lakh P2PM threshold.
The short answer
UPI is not becoming chargeable for ordinary users. From October 15, 2026, eligible merchants will pay 0.4% MDR when receiving standard UPI payments above ₹2,000, subject to a ₹300 cap. P2P transfers, customer payments, small merchants within the P2PM category and most everyday transactions remain free.
The distinction is important: the announcement introduces a merchant processing charge, not a new fee deducted from every person’s UPI payment.
