The Big Question: Will You Pay More?
Let’s clear the air immediately: for the vast majority of users, UPI will remain free. The government and the National Payments Corporation of India (NPCI) have confirmed that consumers will not be charged for making UPI payments. Any new charges being
introduced are on the merchant's side and are not supposed to be passed on to the customer. Person-to-person (P2P) transactions—like sending money to a friend or family member—remain completely free, regardless of the amount. Your daily habits of paying for groceries, tea, or other small items will not attract any new fees for you.
What's Actually Changing on October 15?
The change is the introduction of a Merchant Discount Rate (MDR) on certain UPI transactions. Effective October 15, 2026, merchants will be charged a 0.4% fee on person-to-merchant (P2M) payments valued above ₹2,000. This MDR is capped at ₹300 per transaction, meaning even for a very large payment of ₹1 lakh, the merchant fee will not exceed ₹300. It’s crucial to understand this is not a fee on all UPI payments but a specific charge levied on merchants for larger transactions to help sustain the payments ecosystem.
Which Transactions Are Affected?
The 0.4% MDR specifically targets merchant payments over ₹2,000. Transactions below this ₹2,000 threshold are exempt, which covers an estimated 96% of all merchant payments by volume, protecting most everyday purchases. Small merchants who collect up to ₹1 lakh per month via UPI are also exempt from this MDR. Special, lower rates apply to certain sectors. For example, payments for fuel, railways, insurance, and telecom services will attract a flat ₹5 fee for transactions over ₹2,000, instead of the percentage-based charge. UPI AutoPay for recurring bills and subscriptions is also excluded from this new MDR framework.
So, Who Pays the Fee?
The MDR is to be borne entirely by the merchant receiving the payment, not the customer making it. For example, if you pay ₹3,000 at an eligible electronics store, the store pays a ₹12 fee (0.4% of ₹3,000) to its bank or payment processor. You, as the customer, will only pay ₹3,000. The government has explicitly prohibited merchants from passing this cost on to consumers by adding a surcharge for UPI payments. The goal is to ensure that while the payment system generates revenue to maintain and improve itself, the user experience remains seamless and free.
Why Is This Happening Now?
For years, the UPI ecosystem has operated on a zero-MDR framework, which has been instrumental in its massive adoption across India. However, running such a large-scale, secure, and resilient infrastructure has significant costs for banks and payment service providers. Government subsidies have helped, but with transaction volumes soaring into billions each month, a more sustainable long-term financial model is needed. Introducing a modest, merchant-side fee on higher-value transactions is seen as a necessary step to fund the system's ongoing operations, cybersecurity, and future innovation, ensuring UPI remains robust and reliable for everyone.
