Govt announces UPI charges, merchants to pay 0.4% above Rs 2,000; consumers exempt
The government has announced a new Merchant Discount Rate (MDR) framework for select UPI transactions, under which merchants will pay a fee on person-to-merchant (P2M) payments above Rs 2,000, while consumers will continue to use UPI free of charge.
The new framework will take effect from October 15, 2026. Under the standard P2M structure, a 0.4% MDR will apply to UPI transactions above Rs 2,000. For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction.
The charge will be paid by merchants to their acquiring banks and cannot be passed on to customers. Consumers will continue to pay no transaction fee for making UPI payments. UPI app providers will also not be allowed to levy a platform fee or any other charge on UPI payments.
For example, on a Rs 3,000 UPI payment, the merchant would pay Rs 12 as MDR at the 0.4% rate. On a Rs 50,000 payment, the MDR would be Rs 200. On a Rs 1 lakh transaction, the 0.4% calculation would come to Rs 400, but the merchant would pay Rs 300 because of the cap applicable to transactions of Rs 75,000 and above. Source: NPCI
Certain merchant categories will have a separate flat-rate structure. Railways, telecom services, insurance and fuel, among other specified categories, will attract an MDR of Rs 5 per transaction above Rs 2,000 instead of the standard 0.4% rate.
For fuel payments, for instance, a transaction above Rs 2,000 will attract a flat Rs 5 MDR for the petrol pump operator. Fuel payments below Rs 2,000 will carry zero MDR. Insurance premium payments above Rs 2,000 will similarly attract a flat Rs 5 MDR. Government utility payments, including electricity, water and piped natural gas, above Rs 2,000 will also attract a Rs 5 MDR.
Capital-market transactions have been placed under a separate MDR structure. UPI payments involving mutual funds, securities, stockbrokers, dealers and investment platforms will attract an MDR of 0.02%, subject to a maximum cap of Rs 300.
The new MDR framework does not apply to person-to-person (P2P) UPI transactions. Transfers between individuals, including sending money to family or friends and transfers between a person’s own bank accounts, will remain free.
Small merchants covered under the Person-to-Person-Merchant (P2PM) framework will also continue to receive payments without MDR. The FAQ defines these as small vendors receiving up to Rs 1 lakh per month through UPI QR codes directly into their accounts. Receiving an individual payment above Rs 2,000 does not by itself trigger MDR for an exempt P2PM merchant.
The framework also provides that transactions below Rs 2,000 remain free of MDR under the standard P2M structure. More than 95% of P2M UPI transactions by volume fall within this threshold, according to the FAQ.
The government has said MDR revenue will be distributed within the UPI ecosystem to support infrastructure resilience, innovation, cybersecurity and customer service. A dedicated fund is also proposed to support digital-payment infrastructure and merchant onboarding, particularly for small merchants in rural areas and Tier 3 to Tier 6 centres.
The FAQ cites the scale of UPI as a reason for introducing a more commercially sustainable funding model. UPI processed 2,451 crore transactions worth Rs 29.9 lakh crore in August 2026 alone, according to the document. It estimates that maintaining UPI operations, including server bandwidth, fraud prevention systems and bank technical support, costs around Rs 20,000 crore annually.
For consumers, the key point is that the MDR is a merchant-side charge. Customers will not be charged for making UPI payments, and merchants covered by the new framework will not be allowed to pass the MDR on to buyers. Consumers will continue to pay the listed price when making UPI payments.- EndsPublished By: Shipra ParasharPublished On: Sep 15, 2026 19:05 IST
