UPI has become a part of everyday life in India. From buying groceries to paying restaurant bills, millions of people now reach for their phones instead of cash or cards. A new Merchant Discount Rate (MDR) framework, however, has introduced charges for certain higher-value UPI merchant transactions.
The important part is this: consumers will continue to use UPI for free. The new charges apply within the payment ecosystem and are not meant to be directly collected from customers. The framework will come into effect from October 15, 2026.
UPI Charges For Payments Above Rs 2,000
Under the new framework announced by NPCI, a 0.4% charge will apply to certain UPI transactions above Rs 2,000 when consumers pay merchants. The charge will be capped at Rs 300 per transaction.
For example, a merchant transaction of Rs 2,001 would attract a charge of Rs 8 under the 0.4% rate. However, this is a merchant-side MDR and not a fee that the customer is expected to pay directly. The Finance Ministry has advised banks to ensure that merchants do not pass the charge on to consumers.
Some Payments Will Have A Flat Rs 5 Charge
There is also a separate structure for certain merchant categories. For payments above Rs 2,000 involving categories such as railways, telecom services, insurance and fuel, NPCI has specified a flat Rs 5 charge.
This means the rate will not be the same for every high-value UPI merchant payment. The category of the transaction will determine which MDR applies.
Consumers Will Continue To Use UPI For Free
The biggest clarification in the new framework is that consumers are not being asked to pay a UPI transaction fee. NPCI said, “Consumers will continue to transact free of cost using UPI as they have been doing till now. Person-to-Person (P2P) transactions and Person-to-Merchant (P2M) transactions up to Rs 2,000 remain outside the scope of MDR.”
So, if you scan a QR code and pay Rs 1,500 at a shop, there is no MDR under this framework. The same applies to sending money to another person through UPI. Even if a person sends more than Rs 2,000 to a friend or family member, the transaction remains free because it is classified as person-to-person (P2P).
What Happens When You Pay A Merchant More Than Rs 2,000?
The distinction between P2P and P2M payments is important. If you transfer Rs 5,000 to a friend, there is no UPI charge for the transaction. If you pay a merchant Rs 5,000, the transaction falls under the merchant-payment framework and the applicable MDR can apply.
The charge is therefore linked to the merchant transaction and not simply to the amount being transferred through UPI. NPCI has also pointed out that the charges remain lower than those associated with some other digital payment instruments, including credit cards, debit cards and wallets.
Why Has The New UPI Charge Been Introduced?
The revised framework is aimed at creating a revenue structure for the wider digital-payment ecosystem while continuing to keep everyday UPI payments accessible. According to NPCI, the framework will support investments in areas such as resilience, cybersecurity and innovation. It also said around 95% of low-value UPI transactions, those below Rs 2,000, will remain completely free.
A dedicated fund for small merchants is also planned to support digital-payment infrastructure among existing merchants and in Tier 3 and smaller markets. The Finance Ministry has clarified that MDR is not a tax and is not collected by the government. Instead, it is distributed among participants in the payment ecosystem, including banks and payment apps, to support their operations and expansion.
What This Means For Regular UPI Users
For most everyday UPI users, there is no immediate reason to change how they make payments. Small merchant transactions up to Rs 2,000 remain outside the MDR framework, while person-to-person transfers remain free. The change mainly concerns higher-value payments made to merchants. Even there, the announced charge is not supposed to become an additional fee directly paid by consumers.
So, while headlines about UPI charges above Rs 2,000 may sound concerning, the actual framework is more specific. It introduces MDR for certain merchant transactions while keeping consumer-facing UPI payments free.
Conclusion
The new UPI MDR framework marks a change in how higher-value merchant transactions are handled, but it does not mean consumers will suddenly have to pay for using UPI. From October 15, a 0.4% MDR, capped at Rs 300, will apply to certain merchant payments above Rs 2,000, while specified categories such as fuel, telecom, insurance and railways will have a flat Rs 5 charge.
For consumers, UPI remains free. The key difference is that higher-value merchant payments will now carry an MDR within the payment ecosystem.
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