UPI transactions [Person-to-Merchant (P2M)] above a certain limit will attract charges from next month. The National Payments Corporation of India (NPCI) has revised Merchant Discount Rate (MDR) framework for select merchant payments. For merchant payments above Rs 2,000 there will be a little MDR charge, small merchants and low-value transactions will continue to remain free.
The revised framework will come into effect from October 15, 2026. P2M UPI transactions will remain free of cost for consumers. However, P2M transactions with payments above Rs 2,000 will attract 0.4 percent MDR. The MDR will be capped at Rs 300 per transaction. A flat MDR of Rs 5 per transaction will apply to UPI payments above Rs 2,000 in selected merchant categories, including railways, telecom services, insurance and fuel.
New UPI rules from 15 October: What remains free, what will be charged?
What Will Remain Free
1. All Person-to-Person Transactions
All person-to-person (P2P) UPI transactions will remain completely free, irrespective of the amount transferred. No transaction fee, platform fee or other charge may be imposed on individuals for sending or receiving money through UPI. Therefore, UPI transactions accounting for 70% of the total transaction value will remain completely outside the MDR framework.
2. Merchant Payments Up to Rs 2,000
All person-to-merchant (P2M) transactions up to Rs 2,000 will remain free of MDR. Customers will not be required to pay any charge when making such payments through UPI.
3. Payments Received by Small Merchants
Small merchants including street vendors receiving up to Rs 1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to enjoy zero MDR on all transactions. This provision will protect street vendors, neighbourhood shops and other small businesses from additional payment costs.
What Will Attract MDR
1. Merchant Transactions Above Rs 2,000
A nominal MDR of 0.4% will apply only to P2M transactions above Rs 2,000. The MDR will be shared among payment ecosystem participants, including banks, payment service providers and UPI application providers. For transactions of Rs 75,000 and above, the MDR will be capped at ₹300 per transaction.
2. Transactions in Essential Sectors
Transactions above Rs 2,000 in essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of Rs 5 per transaction. The flat charge will provide cost certainty for critical public services and businesses operating on narrow margins.
3. Capital Market Transactions
Payments relating to mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, capped at Rs 300 per transaction. The lower rate is intended to support continued retail participation in formal financial markets.
Customers Will Not Pay MDR
MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments.
Banks have been advised to ensure that merchants do not pass MDR charges on to customers. UPI application providers are expressly prohibited from imposing platform fees or hidden charges.
Individuals will continue to have unlimited free usage, with no monthly quotas, volume restrictions or tiered caps on free UPI transactions.
Daily transaction limits prescribed by banks and NPCI, generally ranging from Rs 1 lakh to Rs 5 lakh depending on the transaction category, are security and risk-management safeguards. They are not charging thresholds.
Most Merchant Transactions Will Remain Unaffected
Data analysis indicates that MDR will apply to only about 4% of merchant transactions.
This means that approximately 96% of merchant transactions will remain unaffected, as they are either below the Rs 2,000 threshold or covered by the zero-MDR framework for small merchants.
The framework therefore protects individuals, micro-enterprises and small businesses while introducing a limited charge on larger merchant transactions.
Support for Small Merchants
Ministry of Finance has said that a dedicated fund will be established to promote UPI adoption among small merchants. An amount equivalent to 5% of total MDR collections will be contributed to this fund.
The fund will support wider UPI acceptance, sustained usage and the inclusion of small businesses in India’s digital payments ecosystem.
Bureau Report
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