UPI payments will be chargeable from October 15, but not for everyone: Full story in 5 points

UPI payments will no longer be free from October 15 as the government has announced a Merchant Discount Rate (MDR) fee on select transactions. But what does this mean for you? Here is everything you need to know in 5 points.

In Short

• Merchants will pay 0.4 per cent MDR on UPI transactions above Rs 2,000
• Govt says consumers will not have to pay this fee
• All person-to-person UPI payments remain unaffected

UPI is changing. From October 15, 2026, select UPI transactions will charge a new Merchant Discount Rate, or MDR. Under the new system, the government says, UPI payments to merchants above Rs 2,000 will attract an MDR of 0.4 per cent. Previously, no such fee was charged on any UPI transaction.

While the MDR fee will be charged for transactions where you pay directly to a merchant, the government says that for you, the consumer, UPI remains free. Here is everything you need to know about this change and who is affected by it.

1. What is MDR fee on UPI

From October 15, the new MDR will apply to direct person-to-merchant, or P2M, UPI transactions above Rs 2,000. If you make a UPI payment of Rs 2,000 or above to a shop, the transaction will attract an MDR of Rs 8. But the government has clarified that this fee will be paid by the merchant, and you shall not be affected.

For transactions above Rs 75,000, the government says, MDR fee will be capped at Rs 300. That is, even if you make a payment of over Rs 1 lakh to a merchant via UPI, the merchant will only need to pay Rs 300 as MDR.

Official estimates state that payments above Rs 2,000 would cover about 5 per cent of all UPI transactions but 65 per cent of the total transaction value. Transactions under Rs 2,000 will not attract any MDR and remain free.

2. Will you have to pay this fee?

As mentioned previously, the government states that you, the consumer, will not have to bear this MDR charge for making UPI transactions. “UPI services will continue without any cost to consumers. Consumers can continue to transact free-of-cost using UPI as they have been doing till now,” the National Payments Corporation of India (NPCI) said in an FAQ.

This means that while a Rs 2,000 UPI transaction will cost a merchant Rs 8 in MDR, the merchant cannot charge you Rs 2,008 to cover this fee. While critics argue that this may lead to higher prices for consumers, NPCI mentions that this may not happen as MDR on UPI remains less than fees charged for Debit Card or Credit Card transactions.

“The proposed UPI MDR is significantly lower than credit card fees and applies only above specific transaction thresholds, shopkeepers have no economic incentive to inflate retail shelf prices,” NPCI stated. “Consumers will continue paying the exact listed price for goods and services.”

3. What about personal UPI transactions?

We all use UPI to make payments to merchants, but also to our friends or family. If you are sending money to a friend, no MDR will be charged on the transaction, even if it exceeds Rs 2,000.

“Whether you are transferring money to a family member, splitting a bill with friends, or performing self-transfers across your own linked bank accounts, zero charges apply,” NPCI said. “Citizens can freely make transfers on UPI of any permitted amount without incurring any transaction fees.”

4. Exemptions for small merchants and some sectors

The government has also made some exemptions for small merchants. Merchants who receive up to Rs 1 lakh a month through UPI QR codes will not be charged MDR.

A single payment above Rs 2,000 does not by itself make such a merchant liable for MDR. If a merchant receives more than Rs 1 lakh through UPI for three consecutive months, it will move into the MDR category.

The standard MDR does not apply to every merchant category either. Railways, telecom services, insurance and fuel payments above Rs 2,000 will attract a flat MDR of Rs 5 per transaction. Electricity, water and piped natural gas payments above Rs 2,000 will also attract the same Rs 5 MDR, while payments below Rs 2,000 will remain at zero MDR.

Capital-market payments involving mutual funds, securities, stockbrokers, dealers and investment platforms will attract an MDR of 0.02 per cent, subject to a cap of Rs 300.

5. Why is the government bringing MDR to UPI?

As per the NPCI, UPI processes billions of transactions every month – with transactions valued at Rs 29.9 lakh crore in August this year alone. The MDR, it says, is being introduced to “further invest into infrastructure resiliency, innovation, cybersecurity (protecting the UPI Infrastructure with banks and non-banks) and customer service.”

The government says UPI has become too large to rely indefinitely on subsidies, with official estimates of around Rs 20,000 crore in cost for operations, server bandwidth, fraud prevention and bank technology support.

In a post on X, the Reserve Bank of India stated that MDR on large-value UPI transactions would help strengthen long-term sustainability of India’s digital payments ecosystem. “A fair and appropriate distribution of MDR across ecosystem participants will support continued investment in technology, infrastructure and acceptance networks,” RBI wrote. “This, in turn, can enable wider UPI acceptance, deepen the customer base and support sustained growth in transaction volumes.”

In effect, starting October 15, UPI will remain free for consumers at the point of payment, but merchant transactions above Rs 2,000 will come with a fee that is said to be borne by merchants. For most users, little changes immediately, but merchants accepting direct UPI payments above Rs 2,000 will now have to account for the new MDR structure.

- Ends