The Core Change: A Fee for Some Merchant Payments
Starting October 15, 2026, some Person-to-Merchant (P2M) UPI transactions above ₹2,000 will attract a Merchant Discount Rate (MDR), which is a processing fee. The standard rate is set at 0.4% of the transaction value. However, this fee is to be paid by
the merchant, not the customer. The government has explicitly stated that consumers will not have to bear this charge and has advised banks to ensure merchants do not pass the cost on to buyers.
Will Your Daily UPI Payments Cost More?
For the vast majority of users, the answer is no. All Person-to-Person (P2P) UPI payments, like sending money to friends or family, remain completely free, regardless of the amount. Furthermore, merchant payments up to ₹2,000 are also exempt from this new MDR. Since a large volume of daily UPI transactions fall under this threshold, most of your regular payments for groceries, transport, and small purchases will be unaffected. Officials estimate that around 96% of all merchant transactions will not be impacted by this change.
How the New Merchant Fee Works
The 0.4% MDR applies only to eligible merchant payments over ₹2,000. For example, on a UPI payment of ₹3,000 to a large retailer, the merchant would incur a fee of ₹12. There is also a cap on this fee; for any transaction of ₹75,000 or more, the maximum MDR is fixed at ₹300. This means a payment of ₹1 lakh would attract a ₹300 fee for the merchant, not ₹400. The revenue generated is intended to help maintain and improve the security and infrastructure of the massive UPI ecosystem.
Exemptions and Special Categories
The new framework includes important exemptions. Small merchants under the Person-to-Person Merchant (P2PM) category who receive up to ₹1 lakh per month via UPI QR codes will continue to have zero MDR. This protects small traders and businesses from the new charge. Additionally, certain specific sectors have concessional rates. For payments above ₹2,000 related to fuel, insurance, railways, and telecom, a lower, flat MDR of ₹5 will apply instead of the 0.4% rate. Financial services like mutual funds and stock trading will see an even lower MDR of 0.02%.
What Consumers Need to Do
As a consumer, you do not need to take any action. Your UPI apps will continue to function as before, and you should not be charged any extra fees for making payments. The changes are on the merchant and banking side of the transaction. It is important to know that merchants are not permitted to add a surcharge to your bill to cover their MDR cost. If a shopkeeper insists on an extra charge for a UPI payment, you have the right to report it to your bank or payment app provider.
