New UPI Charges: End of Free Era of UPI payments for Merchants

Starting October 15, 2026, large merchants in India will be charged a 0.4% Merchant Discount Rate (MDR) on UPI transactions above Rs. 2,000.

What this means for consumers?

Zero cost: UPI payments will continue to be free of cost for end-users.
No cost: No MDR will be levied on customers for UPI payments.
Person-to-Person transactions : Transferring to self, family members, or friends will be free of cost.
No MDR pass-through: Merchants will not be able to levy any additional charges on buyers for UPI payments.

Notably, the government asserted that the MDR is a charge “within the merchant payment ecosystem”, and not on customers making UPI payments. The government has advised banks to ensure that merchants do not pass MDR charges to customers. UPI application providers are “expressly prohibited from imposing platform fees or hidden charges”, the Finance Ministry said.

“Because the proposed UPI MDR is significantly lower than credit card fees and applies only above specific transaction thresholds, shopkeepers have no economic incentive to inflate retail shelf prices. Consumers will continue paying the exact listed price for goods and services,” the National Payments Corporation of India (NPCI) said on Tuesday.
 

What is MDR Charges?

MDR charges, or merchant discount rate charges, are fees that a merchant pays to payment processors and banks in relation to accepting digital payments, such as credit cards, debit cards or digital wallets.

What This Means to Merchants

Threshold: Transactions of Rs. 2,000 or less have a 0% fee for all merchants.
Large Payments: Transactions above Rs. 2,000 at large businesses attract a 0.4% fee.
Maximum Cap: The fee is capped at Rs. 300 for single transactions of Rs. 75,000 and above.
Special Sectors: Categories like railways, fuel, telecom, and insurance use a flat fee of Rs. 5 for payments over Rs. 2,000.

Who is Exempt?

Small Vendors: Merchants who earns up to Rs. 1 lakh per month from QR code transactions will not be charged any MDR
Person-to-Person transactions : The transfers of money between individuals are completely free of any charges.

Why charge MDR on UPI transactions?

The UPI processes more than a billion transactions every month. Considering the scale of operations, NPCI reasoned that it was necessary to diversify its revenues, as the MDR will be used to invest in research, development, security, and infrastructure to provide a better customer experience.