UPI payments remain free for users

• UPI payments from bank accounts remain free for most users
• Merchants will face a 0.4% fee on transactions above Rs 2,000
• From 15 Oct 2026, costs apply to merchants, not customers

Heard about new UPI charges and worried your daily payments will get expensive? Let’s clear the air. The reality is much simpler, and for most people, nothing changes. Here’s a straightforward breakdown of what’s new and what it means for your wallet.

First, Relax: Your UPI Payments Are Still Free

Let's get the most important point out of the way: for the average user, UPI remains free. Sending money to friends or family (person-to-person or P2P) costs nothing, no matter the amount. Paying your local shopkeeper for chai or groceries also remains free for transactions up to ₹2,000. The government and the National Payments Corporation of India (NPCI) have confirmed that customers will not be charged for making these UPI payments. In fact, an estimated 96% of all merchant transactions will remain completely unaffected by the new framework.

So, What Are These 'New Charges'?

The change is a new Merchant Discount Rate (MDR) that applies only to some business transactions. Starting October 15, 2026, when a customer pays a merchant more than ₹2,000 using UPI directly from a bank account, the merchant will be charged a 0.4% fee. For example, on a ₹5,000 payment, the merchant pays a ₹20 fee. This fee is capped at ₹300 for any transaction worth ₹75,000 or more. Crucially, this is a cost for the merchant, not you. The rules explicitly prohibit merchants from passing this MDR cost on to the customer. This system is designed to create a sustainable revenue stream to maintain and improve the UPI infrastructure, including cybersecurity and innovation.

How This Compares to Credit and Debit Cards

This new 0.4% UPI MDR for merchants is still significantly lower than the fees for card payments. Credit card MDR typically ranges from 1.5% to 2.5%, while debit card fees can be up to 0.9%. For a merchant, accepting a ₹10,000 payment via UPI would cost them ₹40 in MDR. The same payment on a debit card could cost up to ₹90, and on a credit card, it could be as high as ₹250. This ensures UPI remains the most affordable digital payment option for businesses. Special, even lower rates apply for essential sectors like fuel, railways, and utilities, which will attract a flat ₹5 fee for transactions over ₹2,000.

The Confusing Case of Wallets and RuPay Cards

It’s important to distinguish the new MDR from pre-existing charges. Payments made via a wallet (also known as a Prepaid Payment Instrument or PPI) have had an interchange fee structure for some time. If you use a wallet like a Paytm Wallet to pay a merchant over ₹2,000, the merchant may be subject to a fee of up to 1.1%. Similarly, using a RuPay credit card linked to UPI is treated like a credit card transaction and follows a separate fee structure, not the new 0.4% MDR. For customers, the simple rule is that payments made directly from your bank account via UPI remain your most straightforward, fee-free option.

What Does This Mean for Rewards and Cashback?

The era of guaranteed cashback on every small UPI transaction has largely passed, as platforms have shifted from acquiring users to building sustainable business models. However, the introduction of a revenue stream for payment providers through MDR could change the game for higher-value transactions. While UPI payments from a bank account are unlikely to come with rewards, the dynamic is shifting for credit. As more RuPay credit cards are linked to UPI, you might see more reward programs emerge to compete with traditional credit cards. For now, if rewards are your priority for a large purchase, it's wise to compare the benefits of your credit card against the simplicity of UPI. A card might offer valuable points or discounts that outweigh the straightforwardness of a UPI payment.