Who Pays and How Much?
UPI transactions are not becoming chargeable for ordinary users. From 15 October 2026, India is introducing a Merchant Discount Rate (MDR) on certain Person-to-Merchant (P2M) UPI transactions above ₹2,000.
For most people paying through Google Pay, PhonePe, BHIM, Paytm or another UPI app, there is no transaction fee to pay. Person-to-person transfers also remain free irrespective of the amount.
The change primarily affects merchants accepting higher-value UPI payments.
The revised framework was announced by the Government of India in September 2026 and takes effect from 15 October 2026. Source: Ministry of Finance / PIB
UPI MDR Rules From 15 October 2026 – Quick Summary
Here is the simplest way to understand the new system:
| Type of UPI transaction | MDR from 15 October 2026 |
|---|---|
| Person-to-Person (P2P) payment | ₹0 |
| Merchant payment up to ₹2,000 | ₹0 |
| Eligible P2PM small merchant | ₹0 |
| Regular P2M merchant payment above ₹2,000 | 0.40% |
| Maximum MDR on regular transaction | ₹300 |
| Selected essential / industry merchant categories | ₹5 per eligible transaction |
| Capital-market transactions | 0.02%, capped at ₹300 |
The government estimates that approximately 96% of UPI merchant transactions will remain unaffected because they either fall below the ₹2,000 threshold or qualify under the small-merchant zero-MDR framework.
What Is MDR?
MDR stands for Merchant Discount Rate.
It is essentially a payment-processing charge paid by a merchant for accepting certain digital payments.
Suppose a customer purchases goods worth ₹10,000 and pays through UPI.
₹10,000 × 0.40% = ₹40 MDR
The ₹40 is a merchant-side payment-processing cost. It is not a ₹40 fee charged to the customer.
The government has also clarified that MDR is not a tax collected by the Government or NPCI. The money is distributed among participants in the payment ecosystem, including banks and payment service providers.
How Much Will Merchants Pay?
For regular merchant UPI transactions above ₹2,000, the standard MDR is 0.40% of the transaction value, subject to a maximum of ₹300 per transaction.
| Customer pays | MDR |
|---|---|
| ₹1,000 | ₹0 |
| ₹2,000 | ₹0 |
| ₹3,000 | ₹12 |
| ₹5,000 | ₹20 |
| ₹10,000 | ₹40 |
| ₹25,000 | ₹100 |
| ₹50,000 | ₹200 |
| ₹75,000 | ₹300 |
| ₹1,00,000 | ₹300 |
The Department of Financial Services provides similar examples in its official FAQ. A ₹3,000 payment attracts ₹12 MDR, ₹50,000 attracts ₹200, while transactions of ₹75,000 and above reach the ₹300 ceiling.
Therefore, the claim that “all UPI transactions above ₹2,000 will have a 0.4% charge” is incomplete.
There are important exemptions and special categories.
Will Customers Have to Pay for UPI?
No.
This is probably the most important point for ordinary UPI users.
The Department of Financial Services says consumers making UPI payments will continue to face zero transaction charges.
The government has also said that merchants should not pass the MDR directly to customers, and UPI application providers are prohibited from imposing a platform fee or hidden UPI transaction charge under this framework.
So if you scan a shop’s QR code and pay ₹3,000, the new MDR does not mean ₹12 should automatically be added to your bill.
The MDR is a merchant-side processing cost.
Sending Money to Friends and Family Remains Free
Nothing changes for normal Person-to-Person (P2P) UPI transfers.
- a friend
- your spouse
- parents or relatives
- another personal bank account
- someone while splitting a restaurant bill
There is no MDR, irrespective of whether the transfer is ₹500, ₹5,000 or ₹50,000.
The government specifically says P2P transactions remain free regardless of the amount transferred.
This distinction between P2P and P2M is crucial.
Small Merchants Get an Important Exemption
This is one of the most important details missing from many simplified reports about the new UPI charges.
Small merchants classified under the Person-to-Person-Merchant (P2PM) framework can continue receiving UPI payments at zero MDR.
According to the Department of Financial Services, eligible small merchants receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category remain protected by the zero-MDR framework.
Even an individual transaction above ₹2,000 does not automatically make an eligible P2PM merchant liable for MDR.
The official FAQ states that MDR applicability depends on the merchant’s account classification. A payment above ₹2,000 by itself does not remove the P2PM exemption.
Is GST Registration Required for This Exemption?
No.
The Department of Financial Services says GST registration is not required to qualify for the P2PM zero-MDR protection.
Eligibility is based on the merchant’s classification and applicable monthly collection threshold, rather than GST registration status.
What Happens if a Small Merchant Crosses ₹1 Lakh?
Banks and payment service providers monitor merchants registered under the P2PM category.
According to the government’s FAQ, merchants whose inward UPI payments exceed ₹1 lakh per month for three consecutive months are transitioned to the P2M merchant category.
That distinction matters far more than simply asking whether a single payment exceeds ₹2,000.
Special ₹5 MDR for Selected Merchant Categories
Some sectors do not pay the normal 0.40% MDR.
For specified essential or thin-margin categories, qualifying UPI transactions above ₹2,000 attract a flat ₹5 MDR per transaction.
The government’s announcement identifies sectors including railways, telecommunications, insurance, fuel and agricultural inputs for concessional treatment.
SBI Payments has informed merchants that its selected MCC categories include:
- Debt Collection
- Fuel
- Agriculture
- Railways
- Bill Payments
- Government
- Insurance
- Education
- Wallet Top-up
- Tolls & Bridges
For merchants in these designated categories, SBI Payments says the applicable charge for transactions above ₹2,000 will be ₹5 plus applicable taxes per transaction.
Actual treatment depends on the merchant’s registered category or MCC. Businesses should verify their classification with their acquiring bank or payment provider rather than assuming that their business qualifies.
Special Rule for Mutual Funds and Capital-Market Payments
Capital-market transactions have another MDR structure.
Payments relating to mutual funds, securities, stockbrokers and securities dealers attract an MDR of:
0.02% of transaction value, capped at ₹300.
This is substantially below the standard 0.40% merchant rate.
What About UPI AutoPay?
Another useful exemption concerns recurring payments.
According to the Department of Financial Services FAQ, automated recurring payments made through UPI Mandates or AutoPay do not carry the prescribed MDR transaction charge under this framework.
This can cover recurring arrangements such as utility bills, subscriptions and recurring investments when processed through the applicable mandate mechanism.
Is There GST on UPI Transactions Now?
This needs careful wording because there is plenty of misleading information online.
There is no GST simply because someone makes a UPI payment above ₹2,000.
GST can, however, apply to the MDR/payment-processing service charged to the merchant.
A customer paying ₹10,000 through UPI does not suddenly face GST on ₹10,000 because UPI was used.
The relevant tax, where applicable, relates to the payment-processing charge.
Why Is MDR Being Introduced?
UPI has become enormous.
NPCI statistics show that in August 2026, UPI processed approximately 24.51 billion transactions worth ₹29.82 lakh crore.
Operating a payment network at that scale involves substantial infrastructure, cybersecurity, fraud-prevention, banking and technology costs.
The Department of Financial Services says industry estimates put the annual cost of maintaining UPI operations, server capacity, fraud prevention and bank technical support at approximately ₹20,000 crore.
The stated policy objective is to move towards a more sustainable commercial model rather than relying indefinitely on government incentives alone.
A dedicated fund is also planned to support UPI adoption among small merchants, with an amount equivalent to 5% of MDR collections earmarked for it.
Does This Mean the End of Free UPI?
Not for consumers.
It is more accurate to say that India is moving away from universal zero-MDR merchant acceptance while retaining free UPI usage for consumers and protecting most low-value and qualifying small-merchant transactions.
According to the government’s estimates, only about 4% of merchant UPI transactions will attract MDR under the new structure, while approximately 96% remain unaffected.
From 15 October 2026, certain higher-value UPI merchant transactions will attract MDR payable within the merchant payment ecosystem. Ordinary consumers, P2P transfers, payments up to ₹2,000 and eligible small merchants remain protected from the charge.
What Should Businesses Do Before 15 October?
Businesses accepting significant amounts through UPI should check their payment setup before the new rules take effect.
- Verify your merchant classification or MCC.
- Check whether your account is classified as P2M or P2PM.
- Review your acquiring bank or payment aggregator’s revised commercial terms.
- Check applicable taxes on MDR.
- Review settlement reports and accounting treatment.
Do not assume that every UPI receipt above ₹2,000 will cost 0.40%. Equally, do not assume your business qualifies for the ₹5 concessional rate simply because it operates in a broadly similar industry.
Your actual merchant classification matters.
Frequently Asked Questions
Will Google Pay, PhonePe or Other UPI Payments Be Charged After 15 October 2026?
Consumers will not be charged MDR for making ordinary UPI payments. The new MDR applies within the merchant-payment ecosystem for eligible P2M transactions.
Is There a UPI Charge for Payments Above ₹2,000?
Not automatically. Regular eligible P2M merchant transactions above ₹2,000 attract 0.40% MDR, but P2P transactions remain free, eligible P2PM small merchants remain exempt and certain merchant categories have special rates.
Who Pays the 0.4% UPI Charge?
The MDR is a merchant-side payment-processing charge. The government says it should not be passed on to customers as an additional UPI charge.
What Is the Maximum UPI MDR?
For regular P2M transactions, MDR is capped at ₹300 per transaction.
Will a ₹1 Lakh UPI Payment Attract ₹400 MDR?
No. Although 0.40% of ₹1 lakh is ₹400, the MDR is capped at ₹300.
Will a ₹2,000 UPI Merchant Payment Attract MDR?
No. Merchant transactions up to and including ₹2,000 remain at zero MDR.
Are Personal UPI Transfers Above ₹2,000 Charged?
No. P2P transfers remain free irrespective of the transaction amount, subject to normal transaction and security limits imposed by banks and NPCI.
Are Small Shops Exempt?
Eligible merchants under the P2PM framework receiving up to ₹1 lakh per month through UPI QR codes remain under zero MDR.
When Do the New UPI MDR Rules Start?
The revised framework takes effect on 15 October 2026.
Bottom Line
The UPI change taking effect on 15 October 2026 is significant, but it does not mean ordinary Indians must start paying to use UPI.
P2P transfers remain free. Payments to merchants up to ₹2,000 remain free. Eligible P2PM small merchants remain protected by zero MDR. Regular qualifying merchant payments above ₹2,000 attract 0.40% MDR, capped at ₹300, while specified sectors receive concessional rates.
For consumers, UPI continues to work largely as before.
For businesses handling higher-value UPI transactions, however, 15 October marks a genuine change in payment-processing costs, making it important to check merchant classification, settlement statements and revised acquiring-bank terms before the new framework takes effect.
Last updated: 2 October 2026. Payment regulations and commercial terms can change. Businesses should verify their applicable merchant category and charges with their bank/payment provider and refer to the latest Ministry of Finance, RBI and NPCI notifications.