Paying through UPI is one of the simplest ways to conduct transactions in India. Scan the QR code, enter your PIN, and the transaction is done! Just like that. No hassle, no extra charge! But that is all about to change.
Certain UPI transactions will soon be charged a fee. This is not a blanket charge but a transaction-based fee that will be levied only on certain UPI payments. So, what’s going to change, who will be affected, and why is this happening now? Here’s everything you need to know about the new UPI charges.
Person-to-Person Transactions Remain Free and Unlimited
Let’s get one thing straight. The new UPI charges will not impact Person-to-Person (P2P) transactions in any way.
That means you can continue sending money to your friends and family or moving money between your own UPI-linked bank accounts without worry. It will all still be free and unlimited.
There are, of course, daily caps on the transaction amounts, typically between Rs 1 lakh and Rs 5 lakh, based on the transaction type. But these limits are not new and are there to manage risks and limit fraud.
In fact, the UPI fee will not be applicable to consumers at all. Instead, it will apply to specific merchants, as per the revised MDR framework.
Related Articles
What is MDR?
Merchant Discount Rate, or MDR, is a fee that banks and payment providers charge merchants for processing digital payments like UPI. The keyword here is ‘Merchant’, as it is the merchant who bears the entire fee.
This is similar to the MDR fee that is applied on credit card and debit card transactions, which carry their own standard rates.
Until now, MDR on UPI transactions has been 0%. But from October 15, 2026, this will all change for Person-to-Merchant transactions.
Related Articles
Person-to-Merchant Transaction Fee
Person-to-Merchant (P2M) transactions above Rs 2,000 will attract a 0.4% fee. But this fee doesn’t rise indefinitely.
For transactions of Rs 75,000 or more, the fee is capped at Rs 300 per transaction. So, even if you spend 1 lakh or 10 lakhs, the total MDR charged will still be Rs 300. Nothing more.
Do keep in mind that 0.4% means 0.4 per Rs 100, which equals 0.004. To calculate how much MDR fee will apply on any given transaction, multiply the transaction amount by 0.004, not 0.4. So, if the cost of a product is Rs 2,500, multiply 2,500 by 0.004, which equals Rs 10 MDR fee that will be levied on top of the product cost.
Here’s a quick look at the MDR fee rates, with example amounts, the exact fee paid by the merchant, and the caps.
| Transaction amount | MDR rate | MDR paid by merchant |
|---|---|---|
| Rs 2,000 and below | - | Rs 0 |
| Rs 2,500 | 0.40% | Rs 10 |
| Rs 10,000 | 0.40% | Rs 40 |
| Rs 25,000 | 0.40% | Rs 100 |
| Rs 50,000 | 0.40% | Rs 200 |
| Rs 75,000 | Fixed Rs 300 | Rs 300 |
| Rs 1,00,000 | Fixed Rs 300 | Rs 300 |
However, there are some exemptions to this that are important to note.
Related Articles
Exemptions for Smaller Merchants
The new MDR fee applies only to large commercial merchants and e-commerce platforms, categorised under the P2M framework. That means, for the fee to apply, the merchant’s account should be receiving more than Rs 1 lakh per month through UPI QR codes.
This provision exempts smaller merchants who receive up to Rs 1 lakh per month through UPI QR codes. These merchants are categorised under the Person-to-Person Merchant (P2PM) framework.
As such, neighbourhood shops, street vendors, and other small businesses in the unorganised retail sector are protected against this extra cost.
However, this is a flexible category. Banks and payment providers actively monitor the inward transactions to determine which merchant comes under which category.
If a small merchant receives more than Rs 1 lakh per month through UPI QR codes for three consecutive months, they will automatically shift to the P2M category. At this stage, they will start attracting the MDR fee on transactions above Rs 2,000.
Similarly, if merchants in the P2M category receive less than Rs 1 lakh per month (for 3 consecutive months), they will shift to the P2PM category.
For capital market transactions done through UPI, the MDR is set even lower at 0.02%, capped at Rs 300 per transaction. Capital market transactions include payments related to mutual funds, securities, stockbrokers, and dealers.
Here’s another table to help you visualise the MDR fee rate for different merchant categories.
| Merchant Category | MDR Applicable | MDR Rate | Cap |
|---|---|---|---|
| P2PM | No | - | - |
| P2M | Yes | 0.4% above Rs 2,000 | Rs 300 |
| P2M (capital market) | Yes | 0.02% for all transactions | Rs 300 |
Related Articles
Flat MDR Fee for Essential Sectors
Transactions above Rs 2,000 in essential sectors will also carry a fee. But instead of following a standard percentage rate, there is a flat fee of Rs 5.
In their press release, the Government of India lists the following essential sectors that will carry the flat Rs 5 fee for transactions above Rs 2,000:
- Railways
- Telecommunications
- Utility bills (electricity, water, PNG)
- Insurance
- Fuel
- Agricultural inputs
- Education fee
This means UPI payments above Rs 2,000 on train tickets, phone recharges, education fees, electricity bill payments, etc., will only attract a flat Rs 5 MDR fee, irrespective of the amount.
However, this is not an exhaustive list. The National Payments Corporation of India’s (NPCI) published an FAQ page that includes the phrase “among others” in the list, which implies there are other unspecified sectors that could also be affected.
Also, none of your recurring payments set up through Autopay will attract the MDR fee. These include subscriptions and bill payments.
Related Articles
Who Gains from the UPI MDR Fee?
The collected fee is distributed among all UPI payment ecosystem participants. This includes banks, UPI application providers, and payment gateway providers.
Here’s how much these participants will gain from the MDR fee on each UPI transaction:
- Customer’s Bank - 40%
- Merchant’s Bank - 30%
- UPI app providers - 20%
- Payment service provider - 10%
So, if you make a purchase of Rs 2,500 and pay via UPI, the merchant will have to pay Rs 10 as an MDR fee. Out of this, Rs 4 go to your bank, Rs 3 go to the merchant’s bank, Rs 2 to your UPI app, and Rs 1 to the payment service provider.
To promote UPI adoption, a dedicated fund is also being set up. The government will contribute 5% of the total MDR collections to this fund.
Why Is There a UPI Fee Now?
Since its launch in 2016, UPI has been completely free. It didn’t matter who sent the money or who received it; there was no hidden fee whatsoever. But the framework that underpins this seamless payment system requires upkeep and improvements.
The Government of India’s press release claims:
“Revenue generated from larger merchant transactions will support banks, payment providers and UPI application providers in expanding and improving digital payment infrastructure.”
— Press Information Bureau, GOI
According to the NPCI's FAQ page, the cost for maintaining UPI operations is around Rs 20,000 crore annually. They go on to say that the intent behind levying MDR on UPI is to support long-term ecosystem sustainability while keeping UPI accessible and convenient for everyday transactions.
Will UPI Fee Lead to Extra Cost to Consumer?
Many merchants in India have thin profit margins. So, it is natural to assume that merchants will pass on the UPI MDR charge to consumers.
To quell these fears, the government has issued some clarification in its press release. It says, “Banks have been advised to ensure that merchants do not pass MDR charges on to customers.”
The word “advised” may be doing a lot of heavy lifting here, because it isn’t clear how it will ensure that merchants do not pass the extra cost to consumers.
The government has also expressly prohibited UPI applications from imposing platform fees or hidden charges.
MDR charges on card payments are regularly passed on to consumers, despite there being guidelines against it.
The new MDR fee rule will go into effect from October 15, 2026.
Frequently Asked Questions
Q. Will UPI remain free?
UPI is free for all Person-to-Person transactions. UPI is also free for payments below Rs 2,000 to merchants.
Q. Will there be any UPI transaction charges in 2026?
The UPI transaction fee rule goes into effect on October 15, 2026. If you pay above Rs 2,000 to a specific category merchant, the transaction will attract the UPI charge, to be paid by the merchant.
Q. Can merchants pass MDR to customers?
No. Merchants are prohibited by the government from passing MDR charges to customers directly.
Q. Will my UPI app charge me?
No. UPI apps cannot charge you for any transaction.
