UPI MDR From October 15: 10 Things Every User Should Know

UPI MDR From October 15, 2026: What's Actually Changing

From October 15, 2026, a new Merchant Discount Rate (MDR) framework will apply to specified UPI person-to-merchant (P2M) transactions. The important point for everyday users is that UPI is not becoming a paid service for consumers. Person-to-person (P2P) transfers remain free, merchant payments of ₹2,000 or below remain free of MDR, and eligible small merchants continue to receive zero-MDR treatment under the P2PM framework.

For specified P2M transactions above ₹2,000, the standard MDR is 0.4%, capped at ₹300 per transaction for payments of ₹75,000 or more. Certain sectors, such as railways, telecom, insurance, fuel and agricultural inputs, have a separate flat MDR structure, while specified capital-market transactions have a lower 0.02% rate capped at ₹300.

Here are 10 important things every UPI user should know before the new framework takes effect.

1. The charge applies to eligible merchants, not to you

MDR is a merchant-side payment processing charge. It is not a fee deducted from the customer's bank account when making an eligible UPI payment. The MDR collected is distributed among participants in the payment ecosystem, including banks and payment application or service providers.

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

2. Person-to-person transfers stay free

If you are sending money to a friend, family member, landlord, domestic worker or another individual, nothing changes under the new MDR framework. Person-to-person UPI transfers remain free regardless of the amount transferred.

This means that sending ₹500, ₹5,000 or a higher amount to another person does not attract the new merchant MDR.

3. Merchant payments of ₹2,000 or below remain free of MDR

All eligible person-to-merchant UPI payments of ₹2,000 or below remain at zero MDR. This covers a large share of everyday low-value payments, such as groceries, meals, local purchases and other routine transactions.

The ₹2,000 figure is an MDR threshold for merchant transactions. It should not be confused with the separate daily transaction limits that banks and NPCI may prescribe for security and risk-management purposes.

4. The standard MDR is 0.4%

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

For example:

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

This amount is a merchant-side cost. It does not mean that the customer will see an additional 0.4% charge deducted from their UPI payment.

5. There is a ₹300 cap on high-value transactions

For specified P2M transactions of ₹75,000 or more, the MDR is capped at ₹300 per transaction.

At ₹75,000, 0.4% equals ₹300. Once the transaction value goes above ₹75,000, the MDR does not continue increasing beyond ₹300 for that transaction.

For example, a qualifying ₹1,00,000 transaction would still have a maximum MDR of ₹300 rather than ₹400.

6. Merchants cannot add MDR as a separate customer charge

The MDR is designed as a merchant-side charge. Banks have been advised to ensure that merchants do not pass the MDR directly on to customers, and UPI application providers are not permitted to impose platform fees or hidden charges on consumers under the framework.

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

However, the MDR is a merchant cost, and businesses may independently review their overall pricing and payment-processing expenses. Any general price change should not be described as a direct MDR surcharge.

7. Eligible small merchants remain protected

Small merchants covered under the Person-to-Person-Merchant (P2PM) framework continue to receive zero MDR on their eligible UPI QR collections up to ₹1 lakh per month.

This provision is intended to protect small businesses such as street vendors, neighbourhood shops and other eligible small merchants from additional payment-processing costs.

The small-merchant exemption is different from the general ₹2,000 transaction threshold. An eligible small merchant under the P2PM framework can continue to receive zero-MDR treatment on eligible transactions within the applicable monthly limit.

8. Some sectors have different MDR rates

Not every eligible merchant transaction above ₹2,000 follows the standard 0.4% rate.

Specified essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, 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, attract a lower MDR of 0.02%, capped at ₹300 per transaction.

Therefore, the exact MDR applicable to a payment depends on the transaction category and the merchant's classification.

9. MDR is different from a customer transaction tax

One common source of confusion is the word ""charge"". MDR is not a tax imposed on people for using UPI. It is a merchant-side payment ecosystem charge applicable to specified transactions.

The Government has clarified that MDR is neither collected as a tax by the Government nor collected by NPCI as a government fee. The amount is distributed among relevant payment ecosystem participants, including banks and payment application providers.

For consumers, the important takeaway is simple: there is no new customer-side MDR deduction for making UPI payments under this framework.

10. The impact is concentrated on a small share of merchant transactions

The Government has stated that 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 for eligible small merchants.

This means the new MDR framework is targeted at specified higher-value merchant transactions rather than being a blanket charge on every UPI payment.

What This Means for You

For everyday UPI users, the most important point is that UPI does not become a paid service from October 15, 2026.

Sending money to another person remains free. Eligible merchant payments of ₹2,000 or below remain free of MDR. Eligible small merchants covered by the P2PM framework also continue to receive zero-MDR treatment within the applicable monthly threshold.

The new 0.4% MDR primarily affects specified merchant transactions above ₹2,000, subject to the applicable category rules and the ₹300 cap for transactions of ₹75,000 or more.

If you are making a larger purchase, the MDR is a cost incurred within the merchant payment ecosystem rather than an additional amount that should automatically be added to your bill.

Frequently Asked Questions

Will I be charged for using UPI after October 15, 2026?
No. Consumers will not be charged MDR for making UPI payments. P2P transfers remain free, and the MDR is applicable on specified merchant-side transactions.

What transaction value triggers the standard 0.4% MDR?
The standard 0.4% MDR applies to specified P2M UPI transactions above ₹2,000. Payments of ₹2,000 or below remain free of MDR.

Is there a maximum MDR amount?
Yes. 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 ask me to pay the MDR separately?
MDR is a merchant-side charge, and banks have been advised to ensure that merchants do not pass the MDR directly on to customers. A separate ""UPI MDR"" or ""UPI surcharge"" should therefore not be added to the customer's bill.

Do small shopkeepers have to pay 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.

Are all merchant payments above ₹2,000 charged at 0.4%?
No. The 0.4% rate is the standard rate for specified P2M transactions. Certain 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 not a tax or a fee collected by the Government or NPCI. It is a charge within the payment ecosystem and is distributed among relevant ecosystem participants.

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

Will my UPI app charge me for making payments?
The new MDR framework does not introduce a customer-side MDR charge. UPI application providers are also not permitted to impose platform fees or hidden charges on consumers under this framework.

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