What is the new UPI fee?
Starting October 15, 2026, a Merchant Discount Rate (MDR) will apply to certain Unified Payments Interface (UPI) transactions. This is not a charge on all UPI payments. The new rule introduces a 0.4% MDR specifically for person-to-merchant (P2M) payments that
are over ₹2,000. For very large transactions of ₹75,000 or more, this fee is capped at a maximum of ₹300. This MDR is a processing fee paid by the merchant for accepting the digital payment. It is not a tax collected by the government. The core purpose of this fee is to create a sustainable financial model for the banks and payment companies that operate the vast UPI infrastructure, covering costs related to servers, cybersecurity, and network expansion.
Who do these charges apply to?
The most important thing to understand is that customers do not pay this fee. The government and the National Payments Corporation of India (NPCI) have been clear that the MDR is to be borne by the merchant receiving the payment and cannot be passed on to the consumer. The fee applies to larger merchants accepting UPI payments over ₹2,000. However, not all merchants are treated the same. There are specific exemptions and different rates for various sectors. For instance, payments for fuel, railways, and telecom services will attract a lower, flat fee of ₹5 for transactions above ₹2,000, instead of the 0.4% rate. This tiered system is designed to balance the operational costs of UPI while protecting essential services and thin-margin industries from high charges.
Are all UPI payments now chargeable?
No, absolutely not. The vast majority of UPI transactions remain completely free. Official estimates suggest that around 96% of all merchant transactions will be unaffected by the new MDR. Here’s a breakdown of what continues to be free: all person-to-person (P2P) money transfers between individuals, regardless of the amount. All merchant payments (P2M) up to the value of ₹2,000 will also remain free of any charges. The zero-MDR policy that helped drive UPI's widespread adoption for everyday purchases at local stores continues for the bulk of transactions. The new fee structure is targeted only at higher-value commercial transactions to ensure the long-term health of the payments ecosystem.
What is the impact on small merchants?
The framework includes specific protections for small businesses. Small merchants who receive up to ₹1 lakh per month through eligible UPI QR code payments are exempt from these new MDR charges. This special provision is designed to ensure that street vendors, neighbourhood kirana stores, and other small-scale entrepreneurs can continue to accept digital payments without impacting their margins. For these businesses, nothing changes. The system recognizes their crucial role in the digital economy and shields them from the new costs associated with larger commercial transactions. Even if a small merchant occasionally receives a payment over ₹2,000, their eligibility for the exemption depends on their overall monthly collections and merchant category.
Why were these rules introduced?
For years, the government promoted a zero-MDR policy for UPI to encourage a nationwide shift away from cash. The strategy was incredibly successful, with UPI processing over 24.5 billion transactions in August 2026 alone. However, maintaining and scaling this massive infrastructure comes with significant costs, estimated to be around ₹20,000 crore annually for banks and payment service providers. The introduction of a nominal MDR for a small fraction of high-value merchant payments is a strategic move to make the UPI system financially self-sustaining. The revenue generated is distributed among the ecosystem players to fund network maintenance, fraud prevention systems, and further innovation, ensuring UPI remains a reliable and secure platform for everyone.
