UPI payments are about to see their biggest pricing change since the payment system became free for merchants. Starting October 15, 2026, a new Merchant Discount Rate (MDR) will apply to certain UPI payments made to merchants.
However, this does not mean that UPI users will suddenly have to pay a fee every time they scan a QR code. Person-to-person UPI payments will remain completely free, and payments of up to ₹2,000 to merchants will also remain free. The new MDR will mainly affect larger merchants receiving qualifying payments above ₹2,000.
What is changing with UPI payments?
The new framework applies to Person-to-Merchant (P2M) transactions. For eligible merchant payments above ₹2,000, the MDR will be 0.4% of the transaction value, with a maximum charge of ₹300 for transactions of ₹75,000 or more.
For example, an eligible merchant receiving a ₹2,500 UPI payment would pay ₹10 as MDR. A ₹10,000 transaction would attract ₹40, while a ₹75,000 transaction would reach the ₹300 cap. Payments above ₹75,000 will also remain capped at ₹300.
The important point is that MDR is a merchant-side charge, not a fee that UPI users have to pay directly. UPI apps are also not allowed to impose platform fees or hidden charges on consumers under the new framework. Banks have been advised to ensure that merchants do not pass the MDR on to customers.
Read: What is UPI Lite and how to use it?
Your UPI transfers to friends will remain free
If you use UPI to send money to a friend, family member or another individual, nothing changes. Person-to-Person (P2P) transactions will remain free regardless of the amount transferred.
The daily transaction limits set by banks and NPCI will also continue to apply, but these are security and risk-management limits rather than charges for using UPI.
Payments to merchants of ₹2,000 or less will also continue without MDR.
Small merchants are also protected
The new MDR is not meant to apply to every shopkeeper accepting UPI. Merchants receiving up to ₹1 lakh per month through UPI QR codes can remain under the zero-MDR P2PM category.
This means many small shops, street vendors and neighbourhood businesses will continue to accept UPI without paying the new MDR. The government says that around 96% of all P2M transactions will remain unaffected, either because they are below the ₹2,000 threshold or because they fall under the zero-MDR framework for small merchants.
Some sectors will have a different MDR
There are also special rates for certain sectors. Payments above ₹2,000 in essential sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat ₹5 MDR instead of the standard 0.4% rate. Capital-market payments, including transactions involving mutual funds, securities, stockbrokers and dealers, will have a lower 0.02% MDR, capped at ₹300 per transaction.
UPI AutoPay and recurring payments are also treated separately under the framework and are not subject to the new MDR in the same way as eligible one-time P2M transactions.
Why is UPI introducing MDR now?
UPI has operated under a zero-MDR model for years, but running the payment network comes with significant costs. The government says the new framework is intended to create a more sustainable commercial model while keeping UPI free for individuals and protecting small merchants.
The MDR collected from eligible transactions will be distributed among participants in the UPI payment ecosystem, including banks and payment service providers. It is not a tax collected by the government.
The change therefore does not turn UPI into a paid service for regular users. Instead, it introduces a merchant-side processing fee for a limited category of higher-value transactions.
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Will you have to pay more when using UPI?
For most people, no.
Sending money to another person will remain free. Paying a merchant up to ₹2,000 will remain free, and payments to eligible small merchants will also continue under the zero-MDR framework.
Even when MDR applies, the government has said that it should not be passed on to customers. UPI apps are also prohibited from adding their own platform or hidden charges to UPI transactions.
The new MDR framework takes effect on October 15, 2026. So while the headlines may make it sound like UPI is becoming a paid service, the actual change is much narrower: certain merchants will pay a fee on qualifying UPI transactions, while UPI itself remains free for consumers.
