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Alankar Mishra

September 16, 2026

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UPI MDR charges 2026: 0.4% fee above ₹2,000 from October 15 explained

The new payment structure initiated by UPI does not mean that every user will experience UPI payments being charged from October 15, 2026. The new 0.4% merchant discount rate (MDR) will only apply to specific person-to-merchant (P2M) UPI transactions above ₹2,000, with the maximum charge set at ₹300 per transaction. Transfers between people will remain free of charge, thus ensuring that small businesses will see adequate protection.

This distinction is very important because headlines like “UPI payments above ₹2,000 will incur a charge from now on” can easily mislead clients into thinking that sending ₹3,000 via Google Pay, PhonePe, or any other UPI app would automatically incur a charge.

However, this is not true.

The MDR is primarily a fee that merchants are responsible for when making payments, rather than user fees that the user must bear. Therefore, this change is more important for businesses that accept large UPI payments rather than ordinary people sending money to each other.

Here's what businesses and customers should consider concerning the new UPI MDR rules.

UPI MDR 2026 at a glance

Particular	New UPI MDR Rule
Effective date	October 15, 2026
P2P UPI transfers	Free, irrespective of amount
General merchant payment up to ₹2,000	0% MDR
Eligible P2M payment above ₹2,000	0.40% MDR
Maximum standard MDR	₹300 per transaction
₹75,000 and above	MDR capped at ₹300
Eligible small merchants	Zero MDR subject to qualifying conditions
Railways, telecom, insurance, fuel and agricultural inputs	Flat ₹5 for qualifying transactions above ₹2,000
Capital market transactions	0.02%, capped at ₹300
Direct MDR charged to customer	No

Around 96% of merchant UPI transactions are expected to remain unaffected, either because they fall below the ₹2,000 threshold or qualify for the small-merchant zero-MDR framework.

What are the new UPI MDR rules from October 15, 2026?

As per the new RBI regulations, which will be implemented from 15th October 2026, a standard merchant discount rate (MDR) of 0.4% will be applicable for all eligible UPI person-to-merchant transactions for amounts higher than ₹2,000. However, the MDR will be capped for transactions that involve high-value amounts as well. Specifically, for any UPI transaction whose value is greater than ₹75,000, the MDR amount will be capped at ₹300.

For example, if a person makes a transaction of ₹10,000 using UPI, the MDR for that particular transaction will be ₹40. If the amount of the transaction is ₹50,000, the MDR will be ₹200, while the MDR for a transaction amounting to ₹75,000 will be ₹300 according to the 0.4% charges. Therefore, any transaction of ₹75,000 or above will be capped at ₹300 as far as the MDR goes.

It is important to note that this framework is only applicable to transactions where merchants come under this category and does not signify that UPI transactions above ₹2,000 will be charged.

What is MDR in UPI payments?

MDR stands for merchant discount rate.

It is essentially a payment-processing fee associated with a merchant accepting a digital transaction.

MDR should not be confused with a tax directly collected from customers. Instead, it forms part of the payment infrastructure used to process commercial transactions.

Why does the UPI ecosystem need MDR?

Running a transaction system of UPI's magnitude incurs substantial infrastructure and operational expenses.

These comprise:

Payment processing infrastructure
Banking networks
Fraud detection and prevention
Cybersecurity systems
Server infrastructure
Technical maintenance
Payment reconciliation
Customer support systems
Continuous technology upgrades.

Consequently, the modified MDR framework concentrates on a limited number of high-value commercial transactions while exempting the day-to-day normal UPI activity from the regular service variation.

How much MDR will merchants pay on UPI transactions?

For ordinary qualifying P2M payments above ₹2,000, the standard MDR is calculated at 0.40% of the transaction value, up to the ₹300 ceiling.

This cap becomes particularly relevant for businesses dealing in higher-value products and services because the standard MDR does not continue to increase beyond ₹300 for a single qualifying transaction.

Is 0.4% charged only on the amount above ₹2,000?

No. For a qualifying P2M transaction above the threshold, the 0.4% rate applies to the transaction value, rather than only to the portion exceeding ₹2,000.

Consider a ₹3,000 qualifying merchant payment.

The MDR calculation is:

₹3,000 × 0.40% = ₹12

The tax is not calculated only on the ₹1,000 above the ₹2,000 threshold.

This distinction matters because the ₹2,000 figure is a threshold for whether the standard MDR applies, not a deduction from the amount on which MDR is calculated.

Will customers have to pay 0.4% extra on UPI payments?

No. The 0.4% MDR is not a direct cost imposed on users conducting UPI transactions.

To illustrate this point, let us assume a customer buys a product worth ₹10,000 and pays using UPI. In this case, the MDR applicable on the merchant side would be ₹40.

However, that doesn’t necessarily imply that the customer is required to spend ₹10,040.

MDR is used in the context of merchant payment systems, whereby customers don't have to bear the 0.4% MDR even if they opt for UPI transactions worth more than ₹2,000.

Are person-to-person UPI transfers still free?

Yes. Person-to-person (P2P) UPI transfers will continue to remain free irrespective of the amount transferred, subject to the normal transaction and security limits applicable to the account or transaction category.

Suppose you transfer ₹5,000 to a friend, ₹20,000 to a relative or ₹50,000 to another individual through UPI.

The transaction will not attract a new merchant MDR simply because its value exceeds ₹2,000.

This is one of the most important differences in the revised structure the ₹2,000 MDR threshold relates to eligible merchant payments, not ordinary transfers between individuals.

What is the difference between P2P and P2M UPI transactions?

Understanding the difference between P2P and P2M is important because the new MDR framework primarily concerns merchant transactions.

What is a P2P UPI transaction?

The term P2P means "person-to-person".

It refers to transferring money from one person to another.

For instance, sending money to a friend or a family member is usually a P2P transaction.

What is a P2M UPI transaction?

P2M stands for Person-to-merchant, which denotes a customer making a payment to a particular business, retailer or merchant. For instance:

Payment at a restaurant.
Payment using a merchant QR code for purchasing electronics.
Payment at a hotel.
Payment at a retail business.
Payment to a registered service provider.
The new MDR applies to specific P2M transactions with a value above ₹2000.

Are UPI payments below ₹2,000 still free?

Yes. For the general merchant category, P2M UPI transactions up to ₹2,000 will continue to attract zero MDR under the new framework.

A payment of ₹500 at a grocery store, ₹1,000 at a restaurant or ₹2,000 at a retail outlet therefore remains outside the standard 0.4% MDR charge.

This is one reason most everyday merchant UPI transactions are expected to remain unaffected.

Read More: Can a Small Fee Save UPI? Insights from the IIT Bombay Study

Are small merchants exempt from UPI MDR?

Yes, qualifying small merchants are provided a separate zero-MDR protection.

Small merchants, including street vendors, receiving up to ₹1 lakh per month through qualifying UPI QR payments under the applicable small-merchant category can continue to receive zero-MDR treatment on eligible transactions.

This distinction is extremely important for local shops and small businesses.

It means a small merchant covered by the exemption does not automatically become liable for MDR merely because an individual customer makes a payment exceeding ₹2,000.

Eligibility depends on how the merchant is classified and whether the business falls within the applicable conditions.

Street vendors, neighbourhood shops and other micro-businesses are among the categories the exemption is intended to protect from additional digital payment costs.

Which merchant categories have different UPI MDR rates?

Not every business will follow the standard 0.4% rate.

For qualifying transactions above ₹2,000 in certain sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, a flat ₹5 MDR per transaction may apply.

This means a qualifying ₹10,000 transaction in one of these categories would not necessarily attract the normal ₹40 standard MDR.

Instead, the applicable charge could be ₹5 under the special category structure.

Capital-market transactions also have a separate rate.

Payments related to mutual funds, securities, stockbrokers and dealers may attract an MDR of 0.02%, capped at ₹300 per transaction.

Businesses should therefore check their merchant category rather than assuming that the standard 0.4% rate applies universally.

Why is MDR being introduced on UPI payments?

UPI has grown into one of the world's largest real-time digital payment networks.

Billions of transactions are processed every month, making UPI one of the most important parts of India's digital payment infrastructure.

Running a payment network at this scale involves significant infrastructure and operational costs.

These include:

Banking infrastructure
Payment processing systems
Fraud prevention
Cybersecurity
Server and network maintenance
Technical support
Continuous system upgrades

The revised MDR framework is designed to create revenue within the payments ecosystem while preserving free access for individuals and most small-value merchant payments.

Rather than imposing a fee on every UPI payment, the system concentrates the standard MDR on a relatively small portion of higher-value merchant transactions.

How will the new UPI MDR affect businesses?

The financial consequences will largely hinge on the size and average transaction value of the business.

Take, for example, a large merchant conducting 100 UPI transactions of ₹10,000 each in a single month.

With a MDR of 0.4%, the MDR for every transaction will be ₹40.

For 100 transactions, this amounts to ₹40 × 100 = ₹4,000 charged for MDR.

Businesses dealing in electronics, furniture, appliances, expensive goods, travel, and the like may experience a bigger impact than businesses receiving most payments of much less than ₹2,000.

For this reason, companies need to take these costs into account when calculating their margins and operating costs.

However, given that a maximum amount of ₹300 is charged for every transaction, the MDR cannot become prohibitively high for payments of high value.

Is ₹2,000 the new UPI transaction limit?

No. The ₹2,000 figure is not a new UPI payment limit.

This is the threshold above which the standard MDR will apply to specified merchant transactions.

UPI transaction limits are separate and depend on banks, payment categories and transaction types.

So a ₹2,000 MDR threshold does not mean customers are restricted to spending only ₹2,000 through UPI.

Will PhonePe, Google Pay or Paytm charge 0.4% above ₹2,000?

Not simply because you are using one of these apps.

The new MDR is linked to the nature of the merchant transaction and not merely to the UPI application through which the payment is initiated.

A customer making a qualifying merchant payment through Google Pay and another customer making the same type of payment through PhonePe are operating within the same underlying UPI infrastructure.

The key factor is the transaction type and merchant category, not the UPI app itself.

Is UPI no longer free in India?

UPI remains free for a large majority of everyday use cases.

P2P payments remain free. Regular merchant payments up to ₹2,000 remain free of standard MDR. Eligible small merchants continue to receive zero-MDR protection, while certain merchant sectors have specially reduced rates.

Around 96% of merchant transactions are expected to remain unaffected, leaving only a relatively small share subject to the new MDR structure.

Therefore, describing the change as “UPI is no longer free” is too broad.

A more accurate description is that India is introducing a merchant processing fee for a specific segment of higher-value commercial UPI transactions while continuing to protect consumers, P2P transfers and most small-value merchant payments.

What should merchants do before October 15, 2026?

For merchants, the first step should be understanding how their business is classified by their bank or payment service provider.

A neighborhood store eligible for small-merchant treatment may face a very different MDR structure from a large retailer accepting high-value commercial payments.

Businesses should also review:

Average UPI transaction value
Monthly UPI collections
Merchant Category
Payment mix
Number of high-value UPI transactions

This can help them estimate whether the new MDR will materially affect their payment-processing costs.

Merchants operating in special categories such as fuel, insurance, telecom or capital markets should also verify the rate applicable to their specific category rather than using the general 0.4% calculation.

Does Swipe require any changes due to the new UPI rules?

For Swipe users, no changes are required from Swipe’s end due to the new UPI MDR rules. Businesses can continue using Swipe as usual for invoicing and payment-related workflows.

If a business accepts UPI payments through a payment gateway such as Razorpay, any technical or payment-processing changes required under the revised UPI framework will be handled directly by the payment gateway provider.

So, Swipe users do not need to make any manual changes within the platform because of the new UPI rules.

FAQs

Is UPI chargeable above ₹2,000 from October 15, 2026?

Not every UPI payment above ₹2,000 are chargeable. The standard 0.4% MDR applies to specified P2M merchant transactions above ₹2,000. P2P transfers and qualifying exempt merchant transactions remain outside the standard MDR framework.

Who pays the 0.4% UPI MDR?

MDR is a merchant-side payment ecosystem fee. The fee is not a direct 0.4% fee imposed on customers.

Are UPI transfers to friends and family still free?

Yes. P2P UPI transactions will continue to remain free irrespective of the transaction value, subject to normal bank and security limits.

What is the maximum MDR on a UPI transaction?

For ordinary qualifying merchant transactions under the standard 0.4% rate, MDR is capped at ₹300 per transaction.

Will a ₹3,000 merchant payment attract MDR on only ₹1,000?

No. In a standard qualifying P2M transaction, 0.4% would be calculated on the ₹3,000 transaction value, resulting in ₹12 MDR.

Are small shopkeepers required to pay MDR?

Not necessarily. Eligible small merchants will continue to receive zero-MDR treatment, subject to the applicable merchant classification and monthly transaction conditions.

Is ₹2,000 the new daily UPI limit?

No. ₹2,000 is the MDR threshold for specified merchant transactions, not a daily UPI transfer limit.

Will customers be charged extra for using Google Pay or PhonePe?

The new MDR framework does not impose a direct 0.4% fee on customers merely for using a particular UPI app. The applicability of MDR depends on the underlying transaction and merchant category.

Conclusion

The introduction of MDR on selected UPI merchant payments from October 15, 2026 represents an important change in India's digital payment ecosystem, but it does not mean that UPI is becoming universally chargeable.

The key distinction is between personal transfers and commercial merchant payments.

P2P UPI transactions will continue to remain free irrespective of their value. Regular merchant payments up to ₹2,000 also remain free of standard MDR, while qualifying small merchants continue to receive special protection.

For specified larger P2M transactions above ₹2,000, the standard MDR will be 0.4%, capped at ₹300 per transaction. Separate reduced rates may apply to certain sectors and transaction categories.

For customers, the practical impact should therefore be limited. For larger merchants, however, the change introduces a new payment-processing cost that may need to be factored into business operations.

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