- UPI charges announced: Eligible merchant payments above Rs 2,000 will attract MDR from October 15, 2026.
- Standard merchant payments will carry 0.4% MDR capped at Rs 300, while selected sectors have special rates.
- P2P transfers and payments up to Rs 2,000 remain free, with small qualifying merchants also exempt.
One of the major reasons why people have always loved using UPI is that it is absolutely free of any transaction costs. But that is soon going to change, but probably not in the way you think. The recent UPI charges structure introduced by NPCI will see a charge known as the Merchant Discount Rate (MDR) being levied on merchant transactions above Rs 2,000 after October 15, 2026.
But then, this charge is going to be levied only on the merchants, not the customers. Therefore, if you are just transferring money using UPI, there is nothing much to worry about. Let us completely break down the story.
UPI charges announced: new rules will affect some merchant payments
What is changing about UPI?
Under the new rules, Person-to-Merchant (P2M) transactions worth more than Rs 2,000 will attract an MDR of 0.4%, with the ceiling being Rs 300 per transaction. In case of a transaction amounting to Rs 3,000, the MDR charged will be Rs 12.
Once the transaction amount crosses Rs 75,000, the cap of Rs 300 will come into play. Most importantly, the customer need not pay the MDR separately.
Flat Rs 5 for some sectors
Not all merchants will charge on the basis of 0.4% of the transaction amount. Transactions over Rs 2,000 in the sectors like fuel, railways, telecommunications, and insurance will attract a flat Rs 5 MDR.
Transactions in the utility and education sectors have also been categorized as being specially treated. In capital market transactions like mutual funds, securities, and stock broking, MDR is very low at 0.02%, not more than Rs 300.
UPI transactions that remain free
There are quite a few transactions that continue to remain unaffected under the latest guidelines. UPI transactions between individuals continue to remain free regardless of the transaction value. Merchant payments of up to Rs 2,000 continue to remain exempt from the MDR norms.
One more exemption has been granted to small merchants. All merchant transactions of up to Rs 1 lakh per month through UPI QR will continue to be accepted by merchants free from MDR charges. The government estimates that more than 95% of P2M transactions are within the Rs 2,000 limit.
Why is MDR introduced by UPI now?
And this may be the more important point here. UPI has become an immense payments system, handling 24.51 billion transactions amounting to around Rs 29.9 lakh crore in just one month of August 2026. To maintain such a huge system, there are expenses on its maintenance, cybersecurity, and other technical matters.
Overall, thus, MDR is introduced to generate some income from the overall UPI ecosystem, which operated for many years without any MDR charges. From the user side, the conclusion is simple—UPI becomes a paid system only for businesses and not for its consumers.
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