UPI MDR 2026: What Are the New UPI Charges?

India's UPI ecosystem is changing.

From 15 October 2026, select Person-to-Merchant (P2M) UPI transactions above ₹2,000 will attract a Merchant Discount Rate (MDR) of 0.4%, with a maximum charge of ₹300 per transaction for transactions of ₹75,000 and above.

But this does not mean that UPI is becoming a paid service for everyone.

Consumers will continue to use UPI without transaction charges. Person-to-person (P2P) payments will remain free, and eligible small merchants will continue to receive zero-MDR treatment under the applicable framework.

The new framework is specifically aimed at select merchant payments, with the stated objective of creating a more sustainable economic model for the UPI ecosystem while keeping everyday low-value payments affordable.

NPCI's FAQ dated 15 September 2026 sets out the detailed MDR framework, thresholds, exemptions and sector-specific treatment.

This guide explains everything you need to know about UPI MDR 2026.

What Is UPI MDR?

MDR stands for Merchant Discount Rate.

It is a fee associated with processing a merchant payment.

The important point is:

UPI MDR is a merchant-side charge. It is not a fee charged directly to the consumer for making a UPI payment.

Under the new framework, the standard MDR for select P2M UPI transactions above ₹2,000 is 0.4%, subject to the applicable caps and category-specific rules.

For example:

For transactions of ₹75,000 and above, the charge is capped at ₹300.

When Will UPI MDR Start?

The new MDR framework takes effect from:

15 October 2026

This gives banks, payment aggregators, fintech applications and accounting platforms time to update their payment and billing systems.

Until then, businesses should not assume that the new MDR structure is already being applied.

Will Customers Have to Pay UPI Charges?

No.

This is probably the most important point for consumers.

Customers will continue to use UPI without transaction charges.

The new MDR applies within the merchant-side payment ecosystem. It is not a fee added to the amount a consumer pays.

The Ministry of Finance has also explicitly clarified that consumers will not face transaction charges for UPI payments and that the new MDR, where applicable, is limited to select merchant transactions.

So if a product is priced at:

₹5,000

the customer should continue to pay:

₹5,000

The merchant-side processing economics are separate.

Does UPI MDR Apply to P2P Payments?

No.

Person-to-Person (P2P) UPI transactions remain free.

This includes payments such as:

• Sending money to family

• Sending money to friends

• Splitting a bill

• Transferring money between your own accounts

The new MDR framework is focused on selected Person-to-Merchant (P2M) transactions.

So there is no new general-purpose "UPI transfer fee" for consumers.

What Happens to UPI Payments Below ₹2,000?

For the applicable merchant-payment framework, transactions up to ₹2,000 remain outside the new MDR.

NPCI says these small-value P2M transactions account for more than 95% of total UPI P2M transaction volume in its FAQ, which is one reason the threshold was introduced to protect everyday digital payments.

The Ministry of Finance has separately confirmed that UPI payments up to ₹2,000 remain protected from charges.

That means the everyday UPI payments people make for smaller purchases are largely unaffected by the new MDR framework.

What Is the New 0.4% UPI MDR?

For select P2M UPI transactions above ₹2,000, the standard MDR is:

0.4%

The charge is calculated against the transaction value, subject to the ₹300 cap for transactions of ₹75,000 and above.

Example: ₹3,000 payment

0.4% of ₹3,000 = ₹12

Example: ₹10,000 payment

0.4% of ₹10,000 = ₹40

Example: ₹50,000 payment

0.4% of ₹50,000 = ₹200

Example: ₹1,00,000 payment

0.4% would normally equal ₹400.

But because the transaction is above ₹75,000, the applicable cap is:

₹300

The NPCI FAQ provides these examples directly.

Is There a Maximum UPI MDR?

Yes.

For transactions of ₹75,000 and above, the standard MDR is capped at:

₹300 per transaction

This means a ₹1 lakh payment does not attract ₹400 at the standard 0.4% rate.

It is capped at ₹300.

This makes the effective MDR percentage progressively lower for very large transactions.

For example:

₹75,000 → ₹300 = 0.40%

₹1,00,000 → ₹300 = 0.30%

₹2,00,000 → ₹300 = 0.15%

UPI MDR vs Credit Card MDR

One of the reasons highlighted for the new structure is that UPI remains relatively inexpensive compared with traditional card acceptance.

NPCI's FAQ cites standard credit-card MDRs typically ranging from 1.5% to 2.5%, while debit-card MDR can be up to 0.90% under the referenced comparison. The new UPI baseline is 0.4% for applicable transactions above ₹2,000, with a ₹300 cap at higher values.

So even after the introduction of MDR, the stated policy position is that UPI remains a lower-cost digital acceptance method for merchants.

Why Is UPI MDR Being Introduced?

This is the bigger question behind the announcement.

UPI processes billions of transactions every month.

That requires:

• Banking infrastructure

• Servers

• Network capacity

• Fraud monitoring

• Cybersecurity

• Technical support

• Payment application infrastructure

• Reliability and uptime investments

NPCI's FAQ says MDR revenue is intended to remain within the UPI ecosystem and support infrastructure resilience, innovation, cybersecurity and customer service.

The FAQ also argues that relying exclusively on government incentives or subsidies creates uncertainty for long-term infrastructure investment.

The policy therefore represents a shift toward a commercial, threshold-based model for selected merchant transactions.

Is UPI No Longer Free?

This needs an important distinction.

For consumers:

UPI remains free.

For P2P transactions:

UPI remains free.

For low-value P2M transactions up to ₹2,000:

No MDR under the applicable framework.

For eligible small merchants:

Zero MDR protections continue under the relevant P2PM framework.

For select larger P2M transactions above ₹2,000:

MDR can apply.

So saying:

"UPI is no longer free"

is misleading.

A more accurate statement is:

Select UPI merchant transactions will become chargeable from 15 October 2026, while UPI remains free for consumers and P2P payments.

What Is P2M UPI?

P2M means Person-to-Merchant.

It refers to a UPI transaction where a customer pays a merchant.

Examples include:

• Buying a product

• Paying a restaurant

• Paying school fees

• Paying an insurance premium

• Paying a utility bill

• Paying a business invoice

The new MDR framework specifically focuses on selected P2M transactions.

What Is P2PM and Who Is Protected?

The framework also distinguishes P2PM, a category intended to support small merchants.

The NPCI FAQ describes P2PM merchants as small vendors receiving up to ₹1 lakh per month through UPI QR directly into their accounts and says they continue to receive zero MDR treatment under the framework.

This is particularly relevant to India's:

• Street vendors

• Small shops

• Micro-businesses

• Local retailers

• Informal businesses

The idea is to prevent payment processing charges from becoming a barrier to digital payment adoption among India's smallest merchants.

Do Small Merchants Need a New QR Code?

No.

According to NPCI's FAQ, existing QR infrastructure continues to work.

Small merchants do not need to replace or re-register their existing QR codes simply because of the new MDR framework.

This is important because QR-based payments have become one of the simplest ways for India's smallest businesses to accept digital payments.

What If a Small Merchant Receives More Than ₹2,000?

The ₹2,000 threshold should not be interpreted in isolation.

NPCI's FAQ specifically says that MDR applicability depends on the merchant's account categorisation.

A small merchant operating under an exempted P2PM category does not automatically become chargeable simply because one payment exceeds ₹2,000.

The merchant's classification and applicable framework matter.

What Happens if a P2PM Merchant Crosses ₹1 Lakh?

The FAQ says acquiring banks and payment service providers will monitor inward UPI transaction volumes for P2PM merchants.

If a merchant receives more than ₹1 lakh per month for three consecutive months, the merchant is transitioned into the P2M category under the stated framework.

This creates an important distinction:

P2PM is intended for genuinely small merchants.

Once a business consistently crosses the threshold, it moves into the commercial merchant framework.

Can Merchants Pass UPI MDR to Customers?

No.

The NPCI FAQ states that merchants onboarded under the framework cannot pass MDR charges on to customers when accepting UPI payments.

So merchants cannot simply add:

"UPI fee: ₹20"

to a customer's bill because MDR applies to the transaction.

The cost sits within the merchant-side payment ecosystem.

Will UPI Apps Charge a Platform Fee?

No.

The NPCI FAQ says UPI application providers shall not charge a platform fee or another charge for payments made through UPI.

This is different from the merchant-side MDR.

So consumers should distinguish between:

UPI transaction → free to consumer

and

Merchant payment processing → MDR may apply to eligible transactions

What About UPI AutoPay?

This is one of the most important parts of the new framework for businesses that collect recurring payments.

According to the NPCI FAQ:

Automated recurring standing instructions through UPI Mandates / AutoPay do not carry the prescribed MDR transaction charges.

This means the new standard MDR framework described in the FAQ does not apply to automated recurring AutoPay transactions such as:

• Monthly utility bills

• OTT subscriptions

• Recurring investments

• Other automated recurring payments

This distinction is particularly important for businesses using UPI AutoPay for recurring collection.

One-time P2M payment and recurring AutoPay are not the same transaction category.

Does the New UPI MDR Affect Recurring Payments?

Based specifically on NPCI's 15 September 2026 FAQ:

No prescribed MDR charge applies to automated recurring UPI Mandate / AutoPay transactions under this framework.

This makes recurring payment infrastructure particularly interesting for businesses collecting:

• Education fees

• Memberships

• Subscriptions

• EMIs

• Recurring investments

• Utility payments

• Other scheduled payments

Businesses should still confirm the applicable commercial terms with their acquiring bank, payment aggregator or technology provider, because the FAQ addresses the prescribed MDR framework and does not necessarily describe every commercial fee that may exist elsewhere in a payment stack.

What About Education Fees?

Education is specifically addressed in the NPCI FAQ.

The document says educational fee collections, including:

• School tuition

• University term fees

• Institutional entrance examinations

fall under a designated industry programme category.

It states that transactions above ₹2,000 benefit from flat-fee structures or capped processing rates, while transactions up to ₹2,000 remain free of MDR.

This is an important sector-specific provision for:

• Schools

• Colleges

• Universities

• Coaching institutes

• Training institutions

• Other educational organisations

However, businesses should verify the final operational categorisation and applicable acquiring arrangements before assuming a specific fee treatment.

What About Insurance Payments?

Insurance premiums above ₹2,000 fall under a specialised flat-rate category in the FAQ.

The stated MDR is:

₹5 per transaction

rather than the standard 0.4% percentage-based rate.

For insurance companies and policyholders, this is intended to keep the cost of digital premium collection relatively low.

What About Fuel Payments?

Fuel transactions above ₹2,000 also receive special treatment.

The stated MDR is:

₹5 per transaction

For fuel payments below ₹2,000, the FAQ says MDR remains zero.

This is relevant for:

• Petrol pumps

• Fuel stations

• Large-value fuel purchases
  
  

What About Utility Bills?

The FAQ also gives special treatment to public utility payments.

Examples include:

• Electricity

• Water

• Piped natural gas

For transactions above ₹2,000, the stated MDR is:

₹5 per transaction

Transactions below ₹2,000 carry zero MDR under the stated framework.

What About Mutual Funds and Capital Markets?

Capital-market transactions have another special MDR category.

The FAQ states a rate of:

0.02%

with a maximum cap of:

₹300

This category covers regulated entities including:

• Mutual fund companies

• SEBI-registered stockbrokers

• Securities dealers

• Investment platforms

and applies to specified UPI-funded capital-market transactions.

This is substantially lower than the standard 0.4% rate.

What About Credit Cards Linked to UPI?

The new MDR framework discussed in the FAQ applies specifically to direct account-to-account UPI transactions.

Credit-linked UPI transactions, such as RuPay credit cards linked to UPI or certain bank credit lines, operate under separate credit-product rules.

The NPCI FAQ explicitly distinguishes these from direct user-account-to-merchant-account UPI payments.

So:

UPI account → merchant

and

Credit-linked UPI → merchant

should not automatically be treated as identical for MDR purposes.

UPI MDR 2026: Quick Comparison Table

Source: NPCI FAQ dated 15 September 2026.

Why Is UPI MDR Important for Businesses?

The impact depends heavily on the business.

For a small merchant with mostly ₹500–₹1,500 transactions, the new framework may have little or no impact.

For a business processing thousands of ₹5,000, ₹10,000 or ₹50,000 payments, the economics are different.

For example:

1,000 payments of ₹5,000

Total transaction value:

₹50 lakh

At 0.4%:

₹20,000 MDR

That makes payment acceptance cost a new line item that larger merchants need to model.

At the same time, UPI can remain significantly cheaper than traditional card-based acceptance in many scenarios, according to the comparisons in NPCI's FAQ.

What Should Businesses Do Before 15 October 2026?

Businesses processing significant UPI volumes should start with four steps.

1. Understand Your Transaction Mix

Break down your UPI payments by:

• Transaction value

• Merchant category

• P2P vs P2M

• P2PM vs P2M

• One-time vs recurring

• Industry category

Don't assume every transaction will receive the same treatment.

2. Calculate Your Potential MDR

Take your historical UPI transactions above ₹2,000.

Apply the relevant category-specific rates.

Then model:

Current payment cost vs post-15 October payment cost

This will tell you whether the change is material to your business.

3. Separate Recurring Payments From One-Time Payments

This is particularly important.

If your business collects monthly payments, don't automatically treat every payment as a normal P2M transaction.

Look at whether UPI AutoPay / recurring mandates are appropriate.

The NPCI FAQ specifically states that automated recurring UPI mandates do not carry the prescribed MDR under this framework.

4. Talk to Your Payment Provider

Your payment aggregator, acquiring bank or payment technology provider should clarify:

• Applicable merchant category

• Applicable MDR

• Settlement impact

• Reconciliation

• Invoice treatment

• Category-specific rates

• Recurring payment treatment

• Implementation timeline

The framework's operational parameters and fee distribution are subject to the relevant UPI ecosystem arrangements.

Will UPI MDR Make Digital Payments More Expensive?

For consumers, the answer is no under the announced framework.

For merchants, there will be a cost for selected transactions.

But the broader policy argument is that a sustainable payment ecosystem needs funding for:

• Infrastructure

• Cybersecurity

• Reliability

• Innovation

• Technical support

NPCI says the MDR is intended to remain within the UPI ecosystem for these purposes.

At the same time, the rate is deliberately structured with thresholds, exemptions and caps.

So the policy is essentially trying to balance:

Affordability + merchant adoption + ecosystem sustainability

What Does This Mean for India's Small Businesses?

One of the biggest policy objectives is protecting small businesses.

The FAQ proposes a dedicated fund to support UPI acceptance among small merchants, particularly in:

• Tier 3–6 centres

• Rural areas

• North-East states

• Jammu & Kashmir

• Ladakh

The proposed fund would provide financial assistance for merchant onboarding and incentives aimed at increasing UPI usage among smaller merchants.

That matters because India's next phase of digital-payment growth is increasingly going beyond major cities.

Why the ₹2,000 Threshold Matters

The ₹2,000 threshold is one of the most important parts of the framework.

It separates:

Everyday digital payments

from

Higher-value commercial transactions

The policy therefore attempts to preserve the convenience of UPI for everyday purchases while creating a commercial model for higher-value merchant payments.

This is particularly relevant because low-value payments account for the overwhelming majority of UPI transaction volume, while higher-value transactions account for a much larger share of payment value. The government has described the vast majority of UPI transactions as remaining outside the new charge regime.

UPI MDR 2026: Common Misconceptions

"UPI users will now have to pay a fee."

False.

Consumers remain free from UPI transaction charges under the announced framework.

"Every UPI payment above ₹2,000 costs 0.4%."

Not necessarily.

The framework has merchant classifications and sector-specific rates.

"A ₹1 lakh UPI payment costs ₹400."

No.

For standard applicable transactions of ₹75,000 and above, the cap is ₹300.

"P2P UPI transfers are now chargeable."

No.

P2P remains free.

"Small merchants will automatically pay MDR if someone pays them ₹3,000."

Not necessarily.

P2PM classification and the merchant's overall account categorisation matter.

"UPI AutoPay will now have the same MDR."

The NPCI FAQ says no prescribed MDR applies to automated recurring UPI mandates under this framework.

What This Means for Recurring Payment Businesses

This is arguably one of the most interesting implications of the announcement.

Businesses that collect payments every month have two fundamentally different approaches.

Option 1: Ask the customer to pay every month

Send link → customer pays → repeat

Option 2: Set up a recurring mandate

Customer authorises once → scheduled payments → automated collection

The second model can reduce payment friction and, according to the NPCI FAQ, automated UPI mandates are outside the prescribed MDR transaction charges described in this new framework.

For businesses collecting:

• Education fees

• EMI payments

• Subscriptions

• Memberships

• Insurance

• Recurring investments

• Credit society RDs

• Professional retainers

this distinction deserves attention.

What Happens Next?

The framework comes into effect on 15 October 2026.

Before then, payment ecosystem participants need to update:

• Acquiring systems

• Payment aggregators

• Merchant billing

• Accounting systems

• Settlement systems

• Reporting

• Reconciliation

NPCI's FAQ says the implementation timeline is intended to give ecosystem participants adequate time to make these changes.

Businesses should therefore use the period before October 15 to understand their own payment mix rather than waiting until the framework goes live.

The Bigger Picture: UPI Is Entering a New Phase

The UPI story has largely been about scale.

Now the conversation is increasingly about sustainability.

UPI processed 2,451 crore transactions worth ₹29.9 lakh crore in August 2026, according to the NPCI FAQ.

At this scale, the infrastructure behind every transaction becomes enormous.

The new MDR framework represents an attempt to create a more sustainable commercial model while keeping consumers protected and maintaining low-cost access for small-value payments.

The key change isn't:

"UPI is becoming paid."

It is:

"Selected merchant-side UPI transactions are moving toward a commercial pricing model."

That distinction is important.

What Businesses Should Remember

If you only remember five things about UPI MDR 2026, remember these:

1. UPI remains free for consumers

There is no consumer-facing UPI transaction fee under the announced framework.

2. P2P remains free

Sending money to another person continues without MDR.

3. Select P2M transactions above ₹2,000 will attract MDR

The standard rate is 0.4%.

4. The maximum standard MDR is ₹300

Transactions of ₹75,000 and above are capped at ₹300.

5. UPI AutoPay is treated differently

The NPCI FAQ says automated recurring UPI mandates do not carry the prescribed MDR under this framework.

Final Takeaway

The introduction of UPI MDR in 2026 is one of the biggest changes to India's digital payments economics since UPI's mass adoption.

But the change is more nuanced than the headline "UPI charges introduced" suggests.

For consumers, UPI remains free.

For P2P payments, UPI remains free.

For small-value merchant payments, the ₹2,000 threshold protects everyday transactions.

For eligible small merchants, P2PM protections remain.

For larger commercial P2M transactions, a 0.4% MDR will apply from 15 October 2026, subject to the ₹300 cap and sector-specific rates.

And for businesses collecting payments repeatedly, UPI AutoPay and recurring mandates deserve particular attention, because the NPCI FAQ says they do not carry the prescribed MDR under this framework.

The broader message is clear:

UPI is moving from a purely zero-MDR merchant model toward a more sustainable, threshold-based commercial ecosystem — while trying to preserve its core advantages of accessibility, scale and low-cost digital payments.

For businesses, the smartest response isn't to move away from UPI.

It is to understand which payment flows you have, which MDR category they fall into, and whether recurring collection through UPI AutoPay or other appropriate payment rails can make your payment operations more efficient.

If your business collects monthly fees, instalments, EMIs, subscriptions or other recurring payments, a collection platform such as SlashCollect can help you set up recurring payment plans and automate collections using payment rails such as UPI AutoPay and NACH.

Frequently Asked Questions

When will UPI MDR start in India?

The new MDR framework for applicable UPI P2M transactions takes effect from 15 October 2026.

What is the new UPI MDR rate?

The standard MDR is 0.4% for select P2M UPI transactions above ₹2,000, subject to applicable category rules and the ₹300 cap for transactions of ₹75,000 and above.

Is UPI free for customers in 2026?

Yes. Consumers will not be charged for making UPI payments under the announced framework.

Is UPI free below ₹2,000?

Applicable UPI P2M transactions up to ₹2,000 remain outside the MDR framework.

Is UPI MDR applicable to P2P transactions?

No. Person-to-person UPI transactions remain free.

What is the UPI MDR cap?

For standard applicable P2M transactions of ₹75,000 and above, the MDR is capped at ₹300 per transaction.

Do small merchants have to pay UPI MDR?

Eligible merchants under the P2PM framework continue to receive zero-MDR treatment according to the stated criteria.

Will merchants have to pay MDR on a ₹3,000 UPI payment?

For a standard applicable P2M transaction, 0.4% of ₹3,000 is ₹12. However, merchant category and applicable exemptions must be considered.

Will a ₹1 lakh UPI payment cost ₹400?

No. Under the standard rate, the ₹300 cap applies to transactions of ₹75,000 and above.

Can merchants pass UPI MDR to customers?

No. The NPCI FAQ says merchants cannot pass the MDR charge to customers.

Will UPI AutoPay be charged MDR?

According to NPCI's 15 September 2026 FAQ, automated recurring UPI mandates/AutoPay do not carry the prescribed MDR transaction charge under this framework.

What is the UPI MDR for insurance payments?

The FAQ states a ₹5 flat MDR for insurance premium payments above ₹2,000 under the specialised category.

What is the UPI MDR for fuel payments?

The FAQ states a ₹5 flat MDR for fuel payments above ₹2,000 under the specialised category.

What is the UPI MDR for utility payments?

The FAQ states a ₹5 flat MDR for designated utility payments above ₹2,000.

What is the UPI MDR for mutual funds?

The FAQ states 0.02% with a maximum cap of ₹300 for specified capital-market transactions.

Do existing UPI QR codes need to be replaced?

No. The NPCI FAQ says existing QR infrastructure will continue to function and small merchants do not need to replace or re-register their existing QR codes solely because of this framework.

Sources & official references

Primary source: NPCI, Merchant Discount Rate (MDR) on Select UPI (P2M) Transactions — Frequently Asked Questions, dated 15 September 2026.

https://www.npci.org.in/uploads/FA_Qs_Merchant_Discount_Rate_MDR_on_Select_UPI_P2_M_Transactions_58dba1d39e.pdf

Government clarification: Ministry of Finance / PIB, confirming that consumers will not face UPI transaction charges and that MDR applies only to a limited set of merchant transactions.

Disclaimer: This article is based on information available from official sources, including NPCI, RBI and government publications. Our team has made reasonable efforts to ensure the information is accurate to the best of our knowledge at the time of publication. However, we do not guarantee that it is completely error-free or up to date.

For corrections or inaccuracies, please contact notifications@slashcollect.com.