New UPI Charges 2026: 10 Key Facts Before You Pay Online

New UPI Charges 2026: 10 Key Facts Before You Pay Online

UPI remains free for consumers, but a new Merchant Discount Rate (MDR) framework will apply to specified person-to-merchant (P2M) transactions from October 15, 2026. The framework does not introduce a general fee for using UPI, and person-to-person (P2P) transactions will continue to remain free regardless of the amount transferred.

For specified merchant transactions above ₹2,000, a standard MDR of 0.4% will apply, subject to a maximum of ₹300 per transaction for transactions of ₹75,000 or more. Certain essential and thin-margin sectors will have a separate flat MDR structure, while specified capital-market transactions will have a lower rate.

For consumers, the most important point is that MDR is a merchant-side payment ecosystem charge. It is not a customer transaction fee, and banks have been advised to ensure that merchants do not pass MDR directly on to customers.

Here are 10 important facts you should know before making UPI payments under the new framework.

1. UPI is not becoming a paid service for consumers

The introduction of MDR does not mean that customers will have to pay a fee every time they use UPI.

Person-to-person UPI transfers will continue to remain completely free, irrespective of the amount being transferred. Consumers will also not be charged MDR when making eligible merchant payments.

The new framework primarily changes the way certain merchant-side payment transactions are charged within the UPI ecosystem.

2. P2P UPI transactions remain completely free

If you send money to a friend, family member or another individual, the new MDR framework does not apply to that transaction.

Whether you transfer ₹500, ₹5,000 or a much larger amount to another person, the transaction remains outside the MDR framework.

The Government has clarified that individuals will continue to have free P2P UPI usage without monthly quotas, volume restrictions or tiered caps on free transactions.

3. Merchant payments up to ₹2,000 remain free of MDR

Person-to-merchant UPI payments of ₹2,000 or below will remain free of MDR.

This includes many everyday payments such as purchasing groceries, paying at restaurants, buying products from local shops and making other routine low-value merchant payments.

The ₹2,000 amount is an MDR threshold for specified merchant transactions. It should not be confused with daily UPI transaction limits prescribed by banks or NPCI for security and risk-management purposes.

4. A 0.4% MDR applies to specified merchant payments above ₹2,000

For specified P2M UPI transactions above ₹2,000, the standard MDR will be 0.4% of the transaction value.

For example:

• ₹3,000 payment → ₹12 MDR
• ₹5,000 payment → ₹20 MDR
• ₹10,000 payment → ₹40 MDR
• ₹25,000 payment → ₹100 MDR
• ₹50,000 payment → ₹200 MDR

These amounts represent the merchant-side MDR and should not be interpreted as an additional amount that the customer has to pay to complete the UPI transaction.

The actual MDR applicable to a transaction can also depend on the merchant and transaction category because certain sectors have separate MDR structures.

5. The MDR is capped at ₹300 for transactions of ₹75,000 or more

The standard 0.4% MDR has a maximum cap of ₹300 per transaction for qualifying transactions of ₹75,000 or more.

For example, at ₹75,000, 0.4% equals ₹300. If the transaction value is ₹1,00,000, 0.4% would normally equal ₹400, but the applicable MDR remains capped at ₹300.

This cap prevents the MDR from increasing indefinitely as the transaction value rises.

6. Customers should not be charged MDR separately

MDR is a merchant-side payment processing charge rather than a customer-side UPI fee.

Banks have been advised to ensure that merchants do not pass MDR charges directly on to customers. UPI application providers are also prohibited from imposing platform fees or hidden charges on consumers under the new framework.

A merchant therefore should not add a separate line such as ""UPI MDR"", ""UPI fee"" or ""UPI surcharge"" to a customer's bill simply because the customer chooses to pay through UPI.

Merchants may separately review their overall business costs and pricing, but that should not be presented as a mandatory customer-side UPI MDR charge.

7. Eligible small merchants continue to receive zero MDR

The new framework includes protection for eligible small merchants under the Person-to-Person-Merchant (P2PM) category.

Small merchants, including eligible street vendors and neighbourhood businesses, receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category will continue to receive zero MDR on their transactions.

This provision is designed to prevent additional payment-processing costs from affecting small businesses that rely heavily on digital payments.

It is important to distinguish this monthly small-merchant provision from the general ₹2,000 threshold for P2M transactions. They are separate parts of the MDR framework.

8. Some sectors have different MDR rates

The standard 0.4% MDR does not apply identically to every type of merchant transaction above ₹2,000.

Specified essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of ₹5 per transaction for transactions above ₹2,000.

Specified capital-market transactions, including payments relating to mutual funds, securities, stockbrokers and dealers, will attract an MDR of 0.02%, capped at ₹300 per transaction.

Therefore, the applicable MDR depends on the transaction category and the relevant merchant classification.

9. MDR is not a tax on UPI payments

One of the biggest misconceptions surrounding the new framework is that the Government is introducing a tax on UPI payments.

MDR is not a government tax. It is a charge within the payment ecosystem and is distributed among relevant ecosystem participants, including banks and payment application or service providers.

The Government has specifically clarified that MDR is neither a tax nor a charge collected by the Government or NPCI.

Consumers should therefore distinguish between a merchant-side MDR and a government-imposed transaction tax.

10. Most merchant transactions will remain unaffected

The new framework does not apply to every UPI merchant payment.

According to the Government, approximately 96% of P2M transactions will remain unaffected. These transactions are either at or below ₹2,000 or are covered by the zero-MDR framework applicable to eligible small merchants.

This means the MDR framework is focused on specified higher-value merchant transactions rather than imposing a blanket charge on every UPI payment.

What Does This Mean When You Pay Online?

For consumers, the practical impact of the new UPI framework is limited.

If you are transferring money to another person, your P2P UPI payment remains free. If you are making an eligible merchant payment of ₹2,000 or below, it also remains free of MDR.

For specified merchant transactions above ₹2,000, MDR is applicable on the merchant side. However, this does not mean that you should automatically see an additional 0.4% charge on your bill.

For larger purchases, it is therefore important to understand the difference between the amount you pay the merchant and the payment-processing costs applicable within the UPI ecosystem.

What About Daily UPI Transaction Limits?

The MDR threshold should not be confused with UPI transaction limits.

Banks and NPCI may prescribe daily transaction limits depending on the transaction category and security requirements. These limits are designed for risk management and transaction security, not for charging customers.

A daily transaction limit does not mean that customers have to pay a fee once they cross a particular transaction value.

Is Online Shopping Covered?

UPI merchant payments made for online purchases can fall under the P2M framework when the transaction meets the applicable conditions.

However, the customer does not automatically become liable for the MDR simply because the payment is made online.

The applicable MDR is determined within the merchant payment ecosystem according to the transaction value and category.

Can Merchants Charge Extra for UPI?

MDR is intended to be a merchant-side cost. Banks have been advised to ensure that merchants do not pass the MDR directly on to customers.

If a merchant displays a separate ""UPI charge"", ""MDR charge"" or ""UPI surcharge"" solely because you are paying through UPI, that should not be treated as the standard customer-side MDR under the new framework.

The MDR framework itself does not create a new customer fee for using UPI.

Frequently Asked Questions

Will I have to pay a UPI charge from October 15, 2026?
No. The new MDR framework does not introduce a general customer-side UPI transaction charge. P2P transactions remain free, while MDR applies to specified merchant-side transactions.

Is UPI free for person-to-person payments?
Yes. Person-to-person UPI transactions remain free irrespective of the amount transferred.

Are UPI payments of ₹2,000 or below free?
Eligible P2M UPI transactions of ₹2,000 or below remain free of MDR.

When does the 0.4% MDR apply?
The standard 0.4% MDR applies to specified P2M UPI transactions above ₹2,000, subject to the applicable category rules.

What is the maximum MDR for a ₹75,000 or higher transaction?
For the standard 0.4% MDR category, the charge is capped at ₹300 per transaction for transactions of ₹75,000 or more.

Can a merchant charge me the 0.4% MDR separately?
MDR is a merchant-side charge. Banks have been advised to ensure that merchants do not pass MDR directly on to customers.

Are small merchants exempt from MDR?
Eligible small merchants under the P2PM framework receiving up to ₹1 lakh per month through UPI QR codes continue to receive zero MDR on eligible transactions.

Do all merchant transactions above ₹2,000 attract 0.4% MDR?
No. The standard rate is 0.4% for specified P2M transactions. Certain essential sectors have a flat ₹5 MDR, while specified capital-market transactions have a 0.02% MDR capped at ₹300.

Is MDR a tax imposed by the Government?
No. The Government has clarified that MDR is neither a tax nor a charge collected by the Government or NPCI. It is distributed among participants in the payment ecosystem.

Does the ₹300 cap apply to every UPI transaction?
No. The ₹300 cap applies to the standard 0.4% MDR category for qualifying transactions of ₹75,000 or more. Other transaction categories may have separate rates or flat charges.

Will my UPI app charge me for making a payment?
The new MDR framework does not introduce a customer-side MDR charge. UPI application providers are also prohibited from imposing platform fees or hidden charges on consumers under the framework.

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