UPI charges from October 15: Here’s who will actually have to pay

UPI payments will continue to be free for consumers even after a new Merchant Discount Rate (MDR) framework kicks in from October 15, 2026. The National Payments Corporation of India (NPCI) has clarified that the new charges will apply only to specified merchant transactions, with several categories continuing to remain exempt.

What changes from October 15?

Under the revised framework, a 0.4 per cent MDR will apply to specified person-to-merchant (P2M) UPI transactions above Rs 2,000. For transactions worth Rs 75,000 or more, the charge will be capped at Rs 300 per transaction.

Importantly, the MDR is a charge within the merchant payment ecosystem and will not be collected from customers making UPI payments.

A Rs 3,000 merchant payment, for instance, would attract an MDR of Rs 12, while a Rs 50,000 payment would carry an MDR of Rs 200. For a Rs 1 lakh transaction, the charge would be capped at Rs 300.

What stays free for users?

Person-to-person (P2P) UPI transfers will remain free regardless of the amount. This covers payments between family members and friends, bill splitting and transfers between a user's own linked accounts.

UPI payments to merchants up to Rs 2,000 will also remain free of MDR. The government said around 96 per cent of P2M transactions will remain unaffected by the new framework.

The Finance Ministry said, “MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments. Banks have been advised to ensure that merchants do not pass MDR charges on to customers. UPI application providers are expressly prohibited from imposing platform fees or hidden charges."

Small vendors get an exemption

Small merchants receiving up to Rs 1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to enjoy zero MDR. The exemption covers small businesses such as street vendors and neighbourhood shops.

Merchants in this category do not automatically become liable for MDR if an individual payment exceeds Rs 2,000. Their overall account classification determines whether the charge applies.

Some sectors have separate rates

Certain essential sectors, including railways, telecom, insurance, fuel and agricultural inputs, will have a flat Rs 5 MDR on transactions above Rs 2,000. Capital-market payments involving mutual funds, securities, stockbrokers and dealers will carry an MDR of 0.02 per cent, capped at Rs 300.

The framework also excludes consumers from platform fees and keeps P2P transfers outside the MDR system.

Why is NPCI introducing MDR?

According to the government, MDR revenue will remain within the payments ecosystem and help fund infrastructure, cybersecurity, innovation and other investments needed to support UPI's expansion.

The revised system therefore changes how some merchant transactions are processed commercially, but does not introduce a transaction fee for ordinary consumers using UPI.