From October 15, UPI charges will change the game with a new Merchant Discount Rate (MDR). It will be applied to certain higher-value merchant transactions. Talking about customers, they will remain outside this rule. P2P payments will remain free of charges.
Under the new framework, specified UPI merchant payments above ₹2,000 will attract an MDR of 0.4%. This is a merchant-side charge, while customers will continue to use UPI without any direct MDR.
UPI Charges From October 15: What Changes?
Person-to-merchant (P2M) charges will be implemented after the amount exceeds ₹2,000.
For eligible P2M transactions above ₹2,000, an MDR of 0.4% will apply. For instance, for eligible transactions of ₹75,000 or more, the MDR will be capped at ₹300 per transaction. Payments between individuals will continue to be free.
However, this change will affect only a portion of UPI transactions. As reported by the Finance Ministry, the government estimates that around 96% of P2M transactions will remain outside the MDR framework, although higher-value transactions account for a much larger share of the total transaction value.
Will Customers Have to Pay the UPI Fee?
No, the common public’s UPI transactions won’t be affected. Because the MDR charge comes within the merchant payment ecosystem and will not be charged as a fee charged directly to UPI users.
Banks and payment platforms have been advised to make sure that merchants do not pass the MDR on to customers.
Which UPI Payments Will Remain Free?
Several types of UPI transactions will continue to be in effect without any hidden MDR:
- Person-to-person (P2P) UPI payments: Free of charge.
- P2M payments up to ₹2,000: No MDR.
- Eligible small-merchant transactions: Under the zero-MDR framework.
- Consumer UPI payments: No direct MDR charge.
The government stated that these exemptions are intended to protect consumers and smaller merchants from higher payment costs.
What About UPI Payments Above ₹75,000?
For qualifying merchant transactions of ₹75,000 or more, the 0.4% MDR is capped at ₹300, which means the MDR is capped at ₹300, so it does not keep rising as the transaction value increases.
Special UPI Charges for Essential Sectors
The new framework also provides a separate MDR structure for the specific essential and thin-margin sectors.
UPI payments above ₹2,000 made in different industries like telecommunications, fuel, insurance, railways, and agricultural inputs will attract a flat ₹5 MDR instead of the standard 0.4% rate.
Capital-market transactions will carry a separate 0.02% MDR, capped at ₹300 per transaction across mutual funds, securities, stockbrokers and dealers.
Will Merchants Pay GST on UPI MDR?
The new MDR has also prompted questions about GST for merchants.
According to the latest NDTV report, government sources stated there would be no specific GST burden on the underlying UPI transaction. 18% GST applies to the MDR amount itself.
It has already been confirmed that the new UPI MDR framework will come into effect on October 15, 2026.
Let’s take this example:
For a ₹10,000 eligible transaction:
- MDR at 0.4% = ₹40
- 18% GST on ₹40 = ₹7.20
- Total MDR-related cost = ₹47.20
GST-registered businesses may be able to claim input tax credit, subject to applicable GST rules.
Why Is UPI MDR Being Introduced?
For years, UPI has functioned without a broad-based merchant fee. The new MDR framework is modeled to create a revenue model for the payment ecosystem and support the long-term sustainability of UPI.
The government has said the MDR will be distributed among participants such as banks, payment service providers and UPI application providers. It is not a tax collected by the government or NPCI.
The framework is also intended to support investment in areas such as payment infrastructure, cybersecurity and customer service.
Could UPI Charges Push People Back to Cash?
The impact on consumer behaviour remains a highlight ahead of implementation. As estimated by the Finance Ministry, MDR will apply to only about 4% of merchant transactions, leaving approximately 96% unaffected.
However, retailer and business groups have raised concerns that the extra cost could affect merchants, particularly those operating on thin margins. Reuters reported that some industry groups have warned the new fee could encourage certain businesses to reconsider UPI acceptance.
When Will the New UPI Charges Start?
October 15, 2026, is the confirmed date.
As of September 18, the charges have not yet started. The NPCI framework and government clarifications have already been issued, giving banks, payment platforms and merchants time to prepare for implementation.
What UPI Users Need to Know
For most consumers, the new framework does not introduce a direct UPI fee. The MDR applies within the merchant-payment ecosystem, while P2P payments remain free. There is still a lot of confusion among the public.
Person-to-person (P2P) payments will remain free, and UPI payments up to ₹2,000 will come outside the MDR. So, customers will not be extra-charged like the new merchant MDR. The main change will affect specific high-value payments made to merchants. It will come into effect on October 15, 2026.
For now, the focus shifts to how banks, payment apps, and merchants implement the new system. The MDR is designed as a merchant-side charge, with banks and payment platforms instructed not to pass it directly to customers.
