The Big Change: A Fee for Some Merchant Payments
Starting October 15, 2026, a Merchant Discount Rate (MDR) will apply to some UPI transactions. This is a fee that merchants pay for payment processing. Specifically, a 0.4% fee will be levied on person-to-merchant (P2M) payments of more than ₹2,000. For
very large transactions of ₹75,000 or more, this fee is capped at a flat ₹300. The government and the National Payments Corporation of India (NPCI) have introduced this to create a sustainable revenue model for the UPI ecosystem, which has seen explosive growth and requires continuous investment in technology and security.
What This Means for Shoppers
For the average user, the most important news is what isn't changing. All person-to-person (P2P) UPI transactions, like sending money to friends or family, remain completely free, regardless of the amount. Furthermore, you will not be charged any fee for making a payment to a merchant. The MDR is a charge for the merchant, not the customer. Authorities have been clear that merchants are not supposed to pass this cost directly on to consumers. So, if you buy a television for ₹50,000 and pay via UPI, you will not see an extra 0.4% charge on your bill. The vast majority of everyday small-value transactions will also be unaffected, as the fee only applies to payments above ₹2,000.
The Impact on Sellers and Businesses
The changes directly affect merchants and businesses. Those who receive UPI payments above ₹2,000 will now incur the 0.4% MDR. While this may seem small, for businesses with high volumes of large-ticket sales, the cumulative cost can be significant. However, there are important exemptions. Small merchants, defined as those receiving up to ₹1 lakh per month via UPI QR codes, will continue to have zero MDR on all their transactions, even those above ₹2,000. The government estimates that this and the ₹2,000 threshold mean about 96% of all merchant UPI transactions will remain outside the new fee framework. For larger businesses, this new MDR represents a recurring operational cost that must be factored into their finances. Some sectors like fuel, railways, and telecom will have a lower, flat fee of five rupees per transaction.
Why Introduce Fees Now?
Since 2020, UPI merchant payments have operated on a zero-MDR model to drive digital adoption. This strategy was wildly successful, making UPI a global benchmark. However, running this massive infrastructure is not free. Banks and payment companies bear significant costs for technology, fraud prevention, and cybersecurity, estimated at around ₹20,000 crore annually. The government previously offered some incentives, but these were considered insufficient for long-term sustainability. The new MDR is designed to provide a reliable revenue stream for the ecosystem's participants, encouraging continued investment, innovation, and expansion, particularly in rural areas.
