New Delhi: India’s Unified Payments Interface (UPI) is set to enter a new phase from October 15, 2026, with a Merchant Discount Rate (MDR) framework being introduced for select high-value merchant payments. However, the new rules do not mean that consumers will start paying a fee every time they use UPI.
Under the revised framework, person-to-person (P2P) transfers will remain free regardless of the amount. Payments made to merchants up to ₹2,000 will also remain outside the MDR framework. For specified merchant transactions above ₹2,000, charges will apply on the merchant side.
The National Payments Corporation of India (NPCI) and the government have outlined different rates depending on the type and value of the transaction. The framework also provides exemptions for small merchants and special rates for sectors such as fuel, railways, telecom and insurance.
Consumers will not pay UPI MDR
One of the key points of the new framework is that MDR is a merchant-side charge.
Consumers will continue to use UPI without paying an MDR for eligible transactions. Banks have also been advised to ensure that merchants do not pass the MDR cost on to customers. There will be no monthly quota or limit on the number of free UPI transactions available to individual users under the new framework.
Person-to-person payments, such as transferring money to family members, friends or another personal bank account, will remain free irrespective of the transaction amount.
Therefore, a person transferring ₹5,000 to a family member through UPI will not attract MDR merely because the amount is above ₹2,000.
0.4% MDR on selected merchant payments
For standard person-to-merchant (P2M) transactions above ₹2,000, the MDR will be set at 0.4% of the transaction value.
For example, a merchant transaction of ₹3,000 would generate an MDR of ₹12. A ₹50,000 payment would result in an MDR of ₹200.
However, the framework places a maximum cap on the charge. For transactions of ₹75,000 and above, MDR will be capped at ₹300 per transaction. This means a ₹1 lakh merchant payment would not attract ₹400 under the 0.4% rate; the applicable MDR would remain ₹300.
The charge is therefore structured around merchant payments rather than being imposed as a general UPI usage fee.
Payments up to ₹2,000 remain free
For consumers, UPI merchant payments of up to ₹2,000 will remain outside the MDR framework.
NPCI estimates that more than 95% of P2M transactions will remain unaffected by the new system. This means the majority of everyday transactions, particularly smaller purchases, will continue under the existing free-use arrangement.
A separate exemption has also been provided for small merchants operating under the P2PM category.
Businesses receiving up to ₹1 lakh per month through UPI QR codes under this category will continue to enjoy zero MDR. If a merchant’s UPI collections exceed ₹1 lakh a month for three consecutive months, it can be moved into the regular P2M category.
Existing QR infrastructure will continue to operate, meaning merchants will not need to replace their QR codes simply because the MDR framework is being introduced.
Railways, fuel and telecom get special rate
Not all qualifying transactions above ₹2,000 will attract the standard 0.4% rate.
Certain sectors classified as essential or relatively low-margin will have a flat ₹5 MDR on qualifying UPI payments above ₹2,000.
These categories include railways, telecom services, insurance and fuel, among other specified sectors.
For example, a qualifying ₹20,000 fuel payment would attract ₹5 under the special sectoral rate rather than ₹80 under the standard 0.4% MDR.
This structure is intended to avoid applying the full percentage-based charge to sectors where large-ticket payments are common but margins can be comparatively lower.
Stock brokers and mutual funds get lower MDR
Capital-market transactions will have another separate rate.
Payments involving mutual funds, securities, stockbrokers and dealers will attract MDR of 0.02%, subject to a maximum cap of ₹300 per transaction.
The lower rate means that these transactions will not be charged at the standard 0.4% rate applicable to other qualifying P2M payments.
The differentiated structure allows the UPI ecosystem to apply different MDR rates according to the nature of the merchant transaction.
Why is UPI introducing MDR?
UPI has expanded rapidly in recent years, becoming one of India’s most widely used digital-payment systems.
According to figures cited in the government FAQ, UPI processed 2,451 crore transactions worth ₹29.9 lakh crore in August 2026 alone.
The new MDR framework is intended to create a more sustainable revenue model for the payments ecosystem while supporting continued investment in infrastructure, cybersecurity, fraud prevention and innovation.
The MDR collected will be distributed among participants in the UPI ecosystem rather than functioning as a government tax. A dedicated fund will also receive 5% of total MDR collections to support UPI acceptance and digital-payment infrastructure among small merchants, particularly in smaller cities and rural areas.
What changes for ordinary UPI users?
For most consumers, the immediate change is limited.
A person sending money to another individual will continue to use UPI for free. A consumer buying goods or services from a merchant for ₹2,000 or less will also remain outside the MDR framework.
The changes become relevant mainly when a consumer makes a qualifying merchant payment above ₹2,000. Even in those cases, the MDR is imposed on the merchant side rather than directly on the consumer.
For instance:
| Transaction | MDR treatment from Oct. 15 |
|---|---|
| P2P transfer of any amount | Free |
| Merchant payment up to ₹2,000 | No MDR |
| Standard merchant payment above ₹2,000 | 0.4% |
| Standard payment of ₹75,000 or more | 0.4%, capped at ₹300 |
| Fuel, railway, telecom and insurance — qualifying payments | Flat ₹5 above ₹2,000 |
| Mutual funds, securities, stockbrokers and dealers | 0.02%, capped at ₹300 |
| Eligible small P2PM merchants up to ₹1 lakh monthly collections | Zero MDR |
UPI remains free for everyday payments
The introduction of MDR marks a change in how India’s UPI ecosystem is financed, but it does not amount to a general fee on consumers using UPI.
The framework beginning October 15 is targeted at specified merchant transactions above ₹2,000, while P2P transfers and smaller merchant payments remain free. Small merchants also have a separate exemption based on their monthly UPI collections.
The government and NPCI are positioning the new system as a way to support the long-term sustainability of UPI while retaining free access for consumers and protecting small-value digital payments.
For users, the key takeaway is that UPI itself is not becoming a paid service from October 15. The new MDR will primarily affect specified merchants and transaction categories, with different rates and exemptions depending on the payment.