UPI MDR New Rule 2026: 0.4% Charge on Merchant Payments Above ₹2,000 from October 15 – Full Details
NPCI has announced a 0.4% Merchant Discount Rate (MDR) on UPI merchant payments above ₹2,000 from October 15, 2026, capped at ₹300. P2P transfers, payments up to ₹2,000 and small merchants stay free. Read the new rates, exemptions, who pays and FAQs.
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UPI MDR New Rule 2026: Quick Overview
UPI has been free for merchants since January 2020. That is about to change. In September 2026, the National Payments Corporation of India (NPCI) announced a Merchant Discount Rate (MDR) of 0.4% on selected person-to-merchant (P2M) UPI payments above ₹2,000, effective October 15, 2026.
The good news for ordinary users: sending money to friends and family stays free, UPI payments up to ₹2,000 stay free, and customers are not supposed to pay any extra charge. The fee is paid by the merchant.
This article explains what has changed, who pays, how much, which payments are exempt, and what it means for you.
| Point | Details |
|---|---|
| Rule name | Merchant Discount Rate (MDR) on UPI |
| Announced by | NPCI (UPI Steering Committee), under the Payment and Settlement Systems Act, 2007 |
| Government notification | September 14, 2026 (no charge on UPI payments up to ₹2,000) |
| NPCI circular | September 15, 2026 |
| Effective date | October 15, 2026 |
| Standard MDR | 0.4% on P2M payments above ₹2,000 |
| Maximum charge | ₹300 per transaction (reached at ₹75,000) |
| Who pays | Merchant (not the customer) |
| P2P transfers | Free, any amount |
What Is MDR (Merchant Discount Rate)?
MDR is the fee a shopkeeper or business pays to banks and payment companies for accepting a digital payment. You already see it with debit and credit cards, where merchants pay a percentage of each sale.
For UPI, the government made MDR zero from January 1, 2020 under Section 10A of the Payment and Settlement Systems Act, 2007. Since then, the cost of running UPI has been supported mainly through government incentives given in the Union Budget.
How the New Rule Came About
- Monsoon Session 2026: Parliament passed the Taxation and Other Laws (Amendment) Bill, 2026, which amended Section 10A of the Payment and Settlement Systems Act and opened the door for a selective MDR on UPI. Finance Minister Nirmala Sitharaman said at the time that consumers would stay exempt.
- September 14, 2026: The government issued a gazette notification saying no charges can be levied on UPI payments (and RuPay debit card payments) up to ₹2,000, for either payer or receiver.
- September 15, 2026: NPCI released the MDR framework and FAQs for payments above ₹2,000.
- October 15, 2026: The new charges come into force.
New UPI MDR Rates from October 15, 2026
| Type of payment | MDR |
|---|---|
| Any UPI payment up to ₹2,000 | Free (0%) |
| Person-to-person (P2P) transfer, any amount | Free (0%) |
| Small merchants receiving up to ₹1 lakh a month via UPI QR | Free (0%) |
| General merchant payment above ₹2,000 | 0.4%, capped at ₹300 per transaction |
| Essential sectors above ₹2,000 (railways, telecom, insurance, fuel) | Flat ₹5 per transaction |
| Capital markets (mutual funds, securities, stockbrokers) | 0.02%, capped at ₹300 |
Some reports on the framework also list agricultural inputs, utility bills, credit card bill payments and tax payments in the ₹5 flat-fee group, and mention concessional rates for educational institutions. Merchants in these areas should confirm their exact category with their bank or payment provider.
How Much Will a Merchant Pay? (Examples)
| Payment amount | Category | MDR paid by merchant |
|---|---|---|
| ₹1,500 | Any | ₹0 |
| ₹2,000 | Any | ₹0 |
| ₹5,000 | General merchant | ₹20 |
| ₹10,000 | General merchant | ₹40 |
| ₹75,000 | General merchant | ₹300 |
| ₹1,50,000 | General merchant | ₹300 (cap) |
| ₹8,000 | Fuel / railways / telecom / insurance | ₹5 |
| ₹50,000 | Mutual fund / stockbroker | ₹10 |
Who Is Exempt?
- Person-to-person (P2P) transfers: Sending money to family, friends or anyone's personal UPI ID remains completely free, whatever the amount.
- All UPI payments up to ₹2,000: No MDR, as per the government notification of September 14, 2026.
- Small merchants (P2PM): Small shops and vendors who receive up to ₹1 lakh a month through UPI QR codes stay at zero MDR, according to NPCI's FAQs, whether or not they are GST registered.
- Credit on UPI: Payments made through RuPay credit cards and pre-sanctioned credit lines on UPI continue under their existing rules.
According to NPCI, payments up to ₹2,000 make up more than 95% of UPI merchant transaction volume. The government estimates that only about 4% of merchant transactions will attract MDR. For example, the average grocery, fast-food or restaurant payment is around ₹572, well below the threshold.
Will Customers Have to Pay Extra?
No, not officially. Under the rules:
- Merchants are not allowed to add MDR as a surcharge on the customer's bill.
- Banks and UPI apps cannot charge the payer for these payments.
- Banks and payment companies have been told to make sure merchants do not pass the cost to customers.
However, the Finance Minister and several experts have noted that some merchants could indirectly pass on the cost through prices, or discourage UPI for large bills. If a shop charges you extra for paying by UPI, you can complain to your bank, your UPI app or NPCI.
Where Will the MDR Money Go?
As reported by multiple outlets, the 0.4% MDR will be shared as follows:
| Participant | Share | On ₹10,000 payment (₹40 MDR) |
|---|---|---|
| Issuing bank (customer's bank) | 40% | ₹16 |
| Acquiring bank / merchant acquirer | 30% | ₹12 |
| UPI app provider | 20% | ₹8 |
| Bank partner of the UPI app | 10% | ₹4 |
NPCI says the money will be used for technology upgrades, fraud prevention, cybersecurity and long-term sustainability of UPI. A portion is also meant for a fund to support small merchants and digital payments in Tier-3 to Tier-6 towns, the North-East, Jammu & Kashmir and Ladakh. NPCI has said the detailed framework for this fund will come within three months.
Why Is the Government Bringing MDR Now?
- High running cost: Industry estimates put the cost of running UPI at about ₹20,000 crore a year, while government incentives have covered only a small part of it (roughly ₹2,000 to ₹3,600 crore a year).
- Huge growth: In August 2026, UPI handled about 2,451 crore transactions worth nearly ₹29.9 lakh crore. Merchant payments alone were about 1,550 crore transactions worth ₹8.95 lakh crore.
- Security needs: The government says UPI needs continuous upgrades in cybersecurity, fraud prevention and infrastructure.
- Sustainability: The aim is to shift part of the cost from the Union Budget to large-value merchant payments, while protecting individuals and small businesses.
Who Will Feel the Impact Most?
Businesses with high-value UPI payments will feel it most, for example:
- Electronics, jewellery and furniture shops
- Hospitals, coaching centres and large retailers
- Loan and debt collection (average payment around ₹3,441)
- Stockbrokers (average payment around ₹7,569, but at the lower 0.02% rate)
Kirana stores, street vendors, tea stalls and small shops are mostly unaffected because their payments are usually below ₹2,000 or their monthly UPI receipts are within ₹1 lakh.
What Should You Do?
If you are a customer:
- Keep using UPI as usual. P2P transfers and payments up to ₹2,000 are free.
- Check your bill. A merchant should not add a "UPI charge".
- Report any illegal surcharge to your bank or UPI app.
If you are a merchant:
- Check with your bank or payment provider which category (general, essential, capital market or small merchant) your business falls under.
- Track your monthly UPI QR receipts. If they stay within ₹1 lakh, you remain exempt.
- Do not add MDR to the customer's bill.
Frequently Asked Questions (FAQs)
Q1. When does the UPI MDR rule start? From October 15, 2026.
Q2. Is there any charge on UPI payments up to ₹2,000? No. Payments up to ₹2,000 are free for both payer and receiver.
Q3. Will I be charged for sending money to my family through UPI? No. Person-to-person transfers are free for any amount.
Q4. What is the maximum MDR on one UPI payment? ₹300 per transaction for general merchants, reached at ₹75,000.
Q5. Who pays the MDR, the customer or the shopkeeper? The merchant pays. Customers cannot be charged extra.
Q6. Are small shopkeepers exempt? Yes. Merchants receiving up to ₹1 lakh a month through UPI QR stay at zero MDR.
Q7. How much will I pay for fuel, railway tickets or insurance premiums above ₹2,000? Nothing extra as a customer. The merchant pays a flat ₹5 per transaction.
Q8. Is MDR the same as GST on UPI? No. MDR is a fee paid by merchants to the payment ecosystem. The government has earlier clarified that there is no plan to levy GST on UPI transactions above ₹2,000.
Conclusion
The UPI MDR rule marks the end of the six-year zero-fee era for large merchant payments. For most people, nothing changes: P2P transfers, everyday payments up to ₹2,000 and small shop payments stay free. Businesses handling high-value UPI payments will pay up to 0.4%, capped at ₹300, from October 15, 2026. Keep an eye on official updates from NPCI and your bank for any further changes.
Disclaimer: This article is based on the government notification, NPCI's announcement and reports from trusted news sources as of September 17, 2026. Rules may be updated, so please check the official NPCI website (npci.org.in) or your bank for the latest information.