The Short Answer: No Extra Cost for You
Let's get the most important question out of the way first: for the vast majority of people, nothing changes. Person-to-person (P2P) UPI payments—like sending money to friends or family—remain completely free, regardless of the amount. Similarly, most of your
daily payments to merchants for groceries, tea, or small purchases will also continue without any extra charges. The National Payments Corporation of India (NPCI) has been clear that customers will not be charged for these new fees. Merchants are prohibited from passing on this cost to you as a separate 'UPI charge'. The new rules are designed to create a sustainable model for the companies that run the payment infrastructure, without affecting the end-user experience for everyday transactions.
So, What Is the October 15 Rule Change?
Starting October 15, 2026, a new fee structure called the Merchant Discount Rate (MDR) will apply to certain UPI transactions. Specifically, it's a 0.4% fee that applies only to person-to-merchant (P2M) payments that are over ₹2,000. This fee is paid by the merchant, not the customer. For example, if you buy an item worth ₹5,000 from an eligible merchant, the merchant will receive the amount minus a ₹20 fee (0.4% of ₹5,000). You, the customer, will only pay ₹5,000. This MDR is also capped at a maximum of ₹300 per transaction, which applies to payments of ₹75,000 or more.
Who Is Exempt From This Fee?
A significant portion of the UPI ecosystem is exempt from this new MDR. The fee does not apply to any merchant transaction up to ₹2,000. This covers the bulk of daily retail payments. Furthermore, small merchants who receive up to ₹1 lakh per month via UPI are also completely exempt from these charges. According to government estimates, this means that around 96% of all merchant transactions will remain unaffected by the new framework. The goal is to support small businesses and ensure that digital payments remain an accessible and low-cost option for them, while larger businesses contribute to the upkeep of the payment system they benefit from.
Special Rates for Essential Services
The NPCI has also defined special, lower rates for certain essential service categories to minimise the impact. For merchant payments over ₹2,000 related to railways, telecom services, fuel, and insurance, a flat fee of ₹5 per transaction will apply instead of the 0.4% rate. This ensures that costs do not escalate for critical public utilities. Additionally, transactions related to the capital markets, such as payments for mutual funds or to stockbrokers, will attract a much lower MDR of 0.02%, also capped at ₹300. These tailored rates show an effort to balance the need for revenue with the economic realities of different sectors.
Why Are These Fees Being Introduced?
For years, UPI has operated on a zero-fee model to drive adoption, which has been incredibly successful in making it India's primary digital payment method. However, running such a massive, real-time network incurs significant operational costs for the banks, payment service providers, and fintech companies involved. The introduction of a modest MDR on higher-value transactions is intended to create a viable revenue stream for these ecosystem players. This helps ensure the long-term sustainability, security, and continued innovation of the UPI platform without relying solely on government support or introducing charges for regular users.
