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UPI’s New MDR Rules: Fees, Exemptions and Who Pays From October 15, 2026
From October 15, 2026, eligible UPI payments to merchants above ₹2,000 will carry a 0.4% MDR paid by the merchant, capped at ₹300. A ₹10,000 eligible merchant payment produces a ₹40 MDR charge; at ₹75,000 and above, the charge cannot exceed ₹300.
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Key takeaways
- From October 15, 2026, eligible UPI payments to merchants above ₹2,000 will carry a 0.4% MDR paid by the merchant, capped at ₹300.
- A ₹10,000 eligible merchant payment produces a ₹40 MDR charge; at ₹75,000 and above, the charge cannot exceed ₹300.
- Railways, telecom, insurance and fuel payments above ₹2,000 have a flat ₹5 MDR, while certain capital market payments carry a 0.02% rate, subject to a ₹300 cap.
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openai.comCreate a landscape editorial hero image for this Studio Global article: What is changing in India’s Unified Payments Interface (UPI) fee policy after six years of free use, including the new 0.4% Merchant Discoun. Article summary: From October 15, 2026, UPI will no longer be entirely zero-fee: a 0.4% Merchant Discount Rate (MDR) will apply to eligible person-to-merchant payments above ₹2,000. The direct charge is on the merchant receiving the paym. Topic tags: general, news, general web. Style: premium digital editorial illustration, source-backed research mood, clean composition, high detail, modern web publication hero. Use reference image context only for broad subject, composition, and topical grounding; do not copy the exact image. Avoid: logos, brand marks, copyrighted characters, real person likenesses, fake screenshots, UI text, readable text, watermarks, charts with fake numbers
UPI is moving away from a blanket zero-fee model for merchant acceptance. Beginning October 15, 2026, a Merchant Discount Rate (MDR) applies to certain higher-value person-to-merchant (P2M) payments. The change does not mean people will be charged for sending money to friends or for making ordinary low-value purchases. 1
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The rule in one table
| Payment type | MDR under the new framework |
|---|---|
| Person-to-person (P2P) transfer, any amount | ₹0 |
| Merchant payment up to ₹2,000 | ₹0 |
| Eligible standard merchant payment above ₹2,000 | 0.4%, capped at ₹300 |
| Payment to a qualifying small merchant | ₹0 |
| Railways, telecom, insurance or fuel payment above ₹2,000 | Flat ₹5 |
| Certain capital-market payments, including mutual funds and securities | 0.02%, capped at ₹300 |
The standard 0.4% MDR is assessed on the merchant side of an eligible P2M payment, not on the consumer making it. A ₹10,000 payment, for example, results in a ₹40 MDR charge for the merchant. 10
How the 0.4% fee and ₹300 cap work
For standard eligible merchant payments above ₹2,000, MDR is 0.4% of the transaction value. It reaches the maximum ₹300 at ₹75,000:
- ₹5,000 payment: ₹20 MDR
- ₹10,000 payment: ₹40 MDR
- ₹50,000 payment: ₹200 MDR
- ₹75,000 payment: ₹300 MDR
- Any higher eligible payment: still no more than ₹300 MDR
That cap limits the effective fee rate on transactions above ₹75,000. 2
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What remains free
Three large categories remain outside the charge:
- All P2P transfers. Sending money to another person through UPI remains free regardless of the amount.
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- Merchant payments of ₹2,000 or less. These remain zero-MDR payments.
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- Qualifying small merchants. Reporting on the framework describes an exemption for small vendors receiving up to ₹1 lakh per month through UPI QR payments into their bank accounts.
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The Finance Ministry has said roughly 96% of P2M transactions will remain free, while one report citing the framework says payments excluded from MDR account for 70% of total transaction value. 17
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Special rates for selected payment categories
Not every payment above ₹2,000 falls into the standard 0.4% category.
Payments above the threshold for railways, telecom services, insurance and fuel carry a flat ₹5 MDR per transaction, according to reports on NPCI’s framework. 7
For specified capital-market payments—including mutual funds, securities, stockbrokers and dealers—the reported rate is 0.02% of transaction value, with a ₹300 maximum. 13
These are merchant-side MDR rules. Consumers are not supposed to be directly charged for making UPI payments. 1
Who pays and who benefits?
MDR is a payment-acceptance charge paid by the merchant receiving an eligible transaction. It is not a government tax and is not retained by NPCI; the fee is part of the merchant-payment ecosystem and is intended to compensate participating banks and payment providers. 17
For consumers, the immediate practical change is limited: UPI transfers to other people remain free, as do merchant transactions at or below ₹2,000. For businesses that accept larger UPI payments, the fee adds a cost that did not exist under the broad zero-MDR regime. 1
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Why the policy matters for UPI
UPI began in 2016. Its early pricing included nominal charges that were temporarily waived in 2017, and all charges were removed in 2020, establishing the zero-MDR model that helped drive adoption. The new framework ends that universal merchant-side free period after more than six years, while retaining exemptions for low-value and small-merchant transactions.
The policy is designed to preserve frictionless everyday payments while creating a revenue mechanism for parts of the merchant-payment system. Its real-world effect will depend on how businesses absorb the charge and how consistently the no-direct-charge rule for consumers is enforced. 1
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Bottom line
UPI is not becoming paid for consumers. From October 15, 2026, the main change is a 0.4% MDR on eligible merchant payments above ₹2,000, capped at ₹300 and paid by the merchant. Small transactions, transfers between people and qualifying small merchants remain protected by zero MDR. 2
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People also ask
What is the short answer to "UPI’s New MDR Rules: Fees, Exemptions and Who Pays From October 15, 2026"?
From October 15, 2026, eligible UPI payments to merchants above ₹2,000 will carry a 0.4% MDR paid by the merchant, capped at ₹300.
What are the key points to validate first?
From October 15, 2026, eligible UPI payments to merchants above ₹2,000 will carry a 0.4% MDR paid by the merchant, capped at ₹300. A ₹10,000 eligible merchant payment produces a ₹40 MDR charge; at ₹75,000 and above, the charge cannot exceed ₹300.
What should I do next in practice?
Railways, telecom, insurance and fuel payments above ₹2,000 have a flat ₹5 MDR, while certain capital market payments carry a 0.02% rate, subject to a ₹300 cap.
Sources
reuters.comIndia's UPI ends free era with fee on large merchant ...
moneycontrol.comUPI MDR fixed at 0.4% for transactions over Rs ...