What Is the New UPI Fee?
Starting October 15, 2026, a new rule introduces a Merchant Discount Rate (MDR) on certain UPI transactions. This is a fee that some businesses will pay when they accept a UPI payment. Specifically, a 0.4% MDR will apply to person-to-merchant payments
over ₹2,000. For very large transactions of ₹75,000 or more, this fee is capped at a maximum of ₹300. It's important to understand that this is not a blanket charge on all UPI use; it's a specific fee for a specific type of transaction.
Do Consumers Have to Pay This Fee?
No. The government and the National Payments Corporation of India (NPCI) have been very clear: consumers will not be charged for making UPI payments. All person-to-person (P2P) transactions, like sending money to friends or family, remain completely free, regardless of the amount. The new 0.4% MDR is a cost for the merchant, not the customer. Merchants are also prohibited from passing this cost on to you by adding a surcharge for using UPI.
Which Transactions Are Still Free for Everyone?
The vast majority of UPI transactions will remain free for both consumers and merchants. All UPI payments up to ₹2,000 are exempt from the new MDR. Furthermore, small merchants are also protected. Any business that collects up to ₹1 lakh per month via UPI QR codes will not have to pay any fee, even on transactions above ₹2,000. This exemption is designed to shield about 96% of merchant transactions from the new charge and protect small neighbourhood shops.
How Will This Affect Merchants?
This change primarily impacts medium to large businesses that process a high volume of large-ticket UPI transactions. For them, this new 0.4% fee represents a new operational cost. While the fee is nominal, it could influence their payment preferences. Some trade bodies have warned that retailers might start encouraging customers to use other methods like direct bank transfers or even split bills to keep transactions below the ₹2,000 threshold. However, for certain essential services like railways, fuel, and telecom, a lower flat fee of ₹5 will apply for payments over ₹2,000, instead of the percentage-based charge.
Why Was This Fee Introduced?
The introduction of an MDR aims to create a sustainable revenue model for the digital payments ecosystem. Since 2020, UPI has operated on a zero-MDR regime, meaning banks and payment service providers earned no income from facilitating these transactions. With UPI processing billions of transactions monthly, the costs for infrastructure, technology upgrades, and cybersecurity have grown significantly. This fee structure is intended to provide a revenue stream that helps these companies maintain and improve the payment network, ensuring its long-term health and encouraging further innovation.
What Should Consumers Watch For?
For consumers, the key takeaway is that your own UPI use remains free. However, the digital payment landscape is subtly shifting. You might notice some larger stores having preferences for how you pay for high-value items. It’s also a good reminder to be vigilant against any merchant who tries to unlawfully add a “UPI surcharge” to your bill. Ultimately, this change is a behind-the-scenes adjustment to keep the UPI engine running smoothly. While it may reshape some business practices, its direct impact on your daily coffee or grocery run is non-existent.
