What is the New UPI Charge?
Starting October 15, 2026, the National Payments Corporation of India (NPCI) is introducing a Merchant Discount Rate (MDR) on some UPI transactions. This is not a fee for all UPI payments. It is a 0.4% charge that applies specifically to person-to-merchant
(P2M) payments that are over ₹2,000. This MDR is designed to help cover the operational costs of the UPI ecosystem, including banks and payment service providers, ensuring the system remains secure and innovative. Think of it as a processing fee for businesses, similar to charges they already pay for accepting credit or debit cards.
The Crucial Question: Who Pays?
The most important thing for consumers to know is that this charge is levied on the merchant, not the customer. The NPCI and the Finance Ministry have been clear that individuals making payments will not be directly charged the MDR. So, if you buy an item for ₹5,000 and pay via UPI, you will only pay ₹5,000. The merchant who receives your payment will then have an MDR of ₹20 (0.4% of ₹5,000) deducted from their settlement. Person-to-person (P2P) transfers, like sending money to friends or family, remain completely free, regardless of the amount.
Which Transactions Are Affected?
The new MDR only applies to merchant payments above ₹2,000. Any payment you make to a business that is ₹2,000 or less remains free from this charge for the merchant. For larger transactions, the 0.4% MDR applies, but it is capped at a maximum of ₹300. This cap is reached on transactions of ₹75,000 and above. Furthermore, there are exceptions. Certain sectors like fuel, railways, telecom, and insurance will have a lower flat fee of ₹5 for payments over ₹2,000, instead of the percentage-based charge. Small merchants who receive up to ₹1 lakh per month via UPI are also exempt from this MDR, protecting the vast network of small vendors across the country.
Could Merchants Pass This Cost to You?
While the rule states the MDR is for merchants to bear, some consumers worry that businesses might try to pass the cost on by adding a surcharge. Banks have been advised to ensure merchants do not pass this fee on to customers. Adding a separate “UPI charge” at checkout is a violation of the guidelines. If a merchant asks you to pay an extra amount because you are using UPI for a large payment, you are not obligated to do so. The government has indicated that it will be monitoring to prevent such practices. Customers should always check the final amount before authorising a payment and question any unexpected fees.
Why is This Change Happening Now?
UPI has grown into the world's largest real-time payment system, but running its vast infrastructure costs money. Until now, the government has been subsidising the system to encourage adoption. Introducing a small, merchant-paid fee on larger transactions is seen as a way to make the ecosystem financially self-sustaining. The revenue generated from MDR is distributed among the banks and payment platforms that keep UPI running smoothly. This helps fund everything from cybersecurity measures to future technological upgrades, ensuring the service remains reliable for hundreds of millions of users. The framework is designed to primarily affect larger businesses and higher-value transactions, while keeping everyday UPI use free for both consumers and small merchants.
