UPI payments are getting a new merchant-fee structure, but that does not mean customers will have to pay extra every time they scan a QR code.
From October 15, 2026, eligible person-to-merchant transactions above ₹2,000 will attract a 0.4% Merchant Discount Rate, commonly called MDR. The fee is payable by the merchant, not the customer, and will be capped at ₹300 per transaction.
The distinction matters: the change introduces a processing cost for certain businesses accepting UPI payments. It does not introduce a charge for individuals sending money to friends or paying for purchases.
What Are UPI MDR Charges?
MDR is the fee a business pays for accepting a digital payment. It helps compensate the organisations involved in processing the transaction and is generally deducted before the payment is settled into the merchant’s account.
Under the new framework, the standard 0.4% rate applies to qualifying merchant payments exceeding ₹2,000. Payments of exactly ₹2,000 remain outside this charge.
The amount also depends on the merchant’s classification. Exempt micro-merchants and specified sectors will not follow the standard rate.
How Much Will Merchants Pay?
Here is how the standard rate works for eligible transactions:
| Purchase amount | MDR payable by merchant | Amount paid by customer |
|---|---|---|
| ₹2,000 | ₹0 | ₹2,000 |
| ₹5,000 | ₹20 | ₹5,000 |
| ₹50,000 | ₹200 | ₹50,000 |
| ₹1,00,000 | ₹300, after the cap | ₹1,00,000 |
These examples exclude special merchant categories. Where the standard rate applies, the fee is calculated on the full transaction amount, not only the portion above ₹2,000.
Which Payments Remain Free?
Consumers will continue to make UPI payments without paying this MDR. Personal transfers, including sending money to family, splitting expenses with friends and transferring funds between your own accounts, remain free.
On the merchant side, transactions of ₹2,000 or less retain zero MDR.
Eligible small vendors classified under the Person-to-Person-Merchant, or P2PM, framework also remain exempt. This category covers qualifying merchants receiving up to ₹1 lakh a month through UPI QR payments.
A purchase above ₹2,000 therefore does not automatically generate a merchant fee. The recipient’s account category remains an important part of determining whether MDR applies.
Different Rates Apply to Certain Sectors
The standard 0.4% charge will not apply across every category.
Specified sectors, including railways, telecom, insurance and fuel, will have a flat ₹5 merchant fee on qualifying transactions above ₹2,000.
Capital-market payments fall under a separate structure, with MDR set at 0.02% and capped at ₹300. Credit-card-linked UPI payments and credit lines operate under their own rules and should not be confused with this bank-account-funded merchant-payment framework.
Why Is the Fee Being Introduced?
Processing UPI payments requires ongoing spending on banking systems, network capacity, security and customer support.
The new merchant charges are intended to provide funding for maintaining and improving that infrastructure. The Reserve Bank of India has supported the move as a step towards the payment network’s long-term sustainability.
For customers, the main takeaway is simple: this is a change in how eligible merchant payments are funded behind the scenes, not a new charge deducted from every UPI user.
Frequently Asked Questions
1. When do the new UPI MDR charges begin?
The revised framework takes effect on October 15, 2026. The standard rate is 0.4% on eligible person-to-merchant payments above ₹2,000, subject to a ₹300 cap.
2. Will I pay a fee if I spend more than ₹2,000 using UPI?
No. The MDR is payable by the eligible merchant accepting your payment. Customers remain exempt from this charge, including on purchases above ₹2,000.
3. Can a shopkeeper add MDR to my bill?
Merchants cannot pass this MDR on to customers as an additional UPI payment charge. For example, a ₹5,000 purchase should not become ₹5,020 simply because the merchant owes ₹20 in MDR.
4. Is sending money to friends or family still free?
Yes. Person-to-person transfers remain free for both the sender and the recipient, within applicable transaction limits.
5. Does a payment of exactly ₹2,000 attract MDR?
No. The standard merchant fee applies only when an eligible transaction exceeds ₹2,000.
6. Will every small shop have to pay the new fee?
No. Qualifying merchants in the exempt P2PM category retain zero MDR. A shop’s eligibility depends on its account classification and qualifying monthly collections, not simply its physical size.
7. Do merchants need to replace their UPI QR codes?
No. Existing QR codes can continue to accept payments. The revised fee structure does not require merchants to replace their QR stands.
8. Does the ₹300 cap limit how much I can spend?
No. It limits the standard MDR payable by the merchant on a single transaction. Your permitted payment amount is governed separately by bank, app and transaction-category limits.