For the first time since UPI was made free in 2020, a charge is coming — but not for you. From 15 October 2026, a 0.4% Merchant Discount Rate applies to person-to-merchant UPI payments above ₹2,000. Consumers pay nothing, and merchants are barred from passing it on. Here is the complete rate card, the exemptions, the legal basis, and what businesses need to do before the date.
On 15 September 2026, the National Payments Corporation of India (NPCI) announced a revised Merchant Discount Rate framework for UPI. Under the framework, a merchant discount rate of 0.4% applies to person-to-merchant UPI transactions above ₹2,000, capped at ₹300 for transactions of ₹75,000 and above. It takes effect on 15 October 2026.
This matters because it is the first MDR on bank-account UPI since the government made the system free in 2020. For six years UPI has run as a zero-MDR rail, funded largely by government incentives. That model is now changing at the top end of the value curve, while the everyday-payments end stays free. (Strictly, one merchant-side charge already existed in the wider ecosystem: since 2023 an interchange has applied to UPI payments made from prepaid wallets above ₹2,000. That never touched ordinary bank-account UPI, which is what changes now.)
The design targets a narrow but valuable slice. In 2025-26, transactions above ₹2,000 were only about 4% of P2M UPI transactions by volume but accounted for roughly two-thirds of their value. That asymmetry is the whole point of the threshold: the framework touches a small fraction of transactions while reaching most of the value flowing through the rail. For scale, UPI processed 2,451 crore transactions worth ₹29.9 lakh crore in August 2026 alone.
A Merchant Discount Rate is simply the fee a business pays to accept a digital payment — the same concept that has always applied to debit and credit cards. What is new is that UPI, which merchants have accepted at zero cost, now carries a cost on larger tickets. NPCI's stated rationale is sustainability: running UPI involves real infrastructure, fraud-prevention and support costs, and government incentives were intended as short-term support rather than a permanent subsidy.
NPCI has been explicit that the lead time to 15 October is deliberate — it gives acquiring banks, payment aggregators, fintech applications and corporate accounting platforms time to update their software engines and billing systems. If you run a business that accepts UPI at scale, that sentence is addressed to you.
The headline 0.4% figure is widely quoted but incomplete. The rate does not apply uniformly across merchant categories — several sectors have been given concessional treatment. Here is the full picture as announced:
| Transaction type | Value band | MDR | Cap |
|---|---|---|---|
| P2M — standard merchants | Up to ₹2,000 | NIL | — |
| P2M — standard merchants | Above ₹2,000 | 0.40% | ₹300 (at ₹75,000+) |
| Railways, telecom, insurance, fuel, electricity distribution, municipal water, piped natural gas | Above ₹2,000 | ₹5 flat | ₹5 |
| Capital markets — mutual funds, securities, stockbrokers and dealers, broker wallet top-ups | Above ₹2,000 | 0.02% | ₹300 |
| Education — school tuition, university term fees, institutional entrance examinations | Above ₹2,000 | Flat-fee or capped processing rate under a designated industry programme | Capped |
| UPI AutoPay / recurring mandates — utility bills, OTT subscriptions, recurring investments | Any | NIL | — |
| P2PM — small vendors receiving up to ₹1 lakh/month | Any | NIL | — |
| P2P — person to person transfers | Any | NIL | — |
Two design choices are worth noticing. First, the ₹300 cap means the effective rate falls sharply as ticket size rises — a ₹5 lakh payment carries the same ₹300 as a ₹75,000 one, an effective 0.06%. Second, the categories singled out for flat or near-nil rates are exactly those where a percentage fee on a large bill would have been punitive: a fuel bill, an insurance premium, a mutual fund purchase, a school term fee.
Because this is where most of the public anxiety sits, it is worth stating plainly. The following attract no MDR whatsoever:
And, critically, the consumer never pays in any scenario. NPCI's position is unambiguous: consumers making payments through UPI will not face any charges, and individual account holders can continue using UPI applications for routine daily expenses without worrying about charges. NPCI has separately prohibited UPI app providers from levying platform fees or any other charge on customers for UPI transactions.
Three illustrations of how the arithmetic works in practice — all amounts borne by the merchant, not the payer.
This is the part most coverage skips, and it is the part that makes the framework legally possible at all.
This is the part most coverage skips, and it is the part that makes the framework legally possible at all. The MDR did not appear out of nowhere in September — it is the end of a three-step legal chain that ran through Parliament in August.
UPI could not carry a charge because of Section 10A of the Payment and Settlement Systems Act, 2007. That provision said no bank or system provider shall impose any charge upon a person making or receiving a payment through the electronic modes prescribed under Section 269SU of the Income-tax Act, 1961. UPI and RuPay debit cards were among those prescribed modes. Zero MDR on UPI has been a statutory mandate since January 2020, not a commercial choice.
A technical problem then arose. The Income-tax Act, 2025 replaced the 1961 Act with effect from 1 April 2026, and Section 269SU ceased to exist. Its successor is Section 187 of the Income-tax Act, 2025 — the obligation on a business with turnover above ₹50 crore to provide prescribed electronic payment facilities, with the penalty for default now in Section 452. Section 10A was left pointing at a provision that had been repealed.
The Taxation and Other Laws (Amendment) Act, 2026 (Act No. 21 of 2026, gazetted 17 August 2026) fixed that reference — and did considerably more than fix it. Alongside amendments to the Income-tax Act, 2025 and the Finance Act, 2026, it amended Section 10A of the PSS Act to substitute a new mechanism: the zero-charge protection now applies to the electronic payment modes that the Central Government notifies, by reference to Section 187 of the Income-tax Act, 2025.
The significance is easy to miss. The amendment did not impose any charge, set any rate, or name any merchant category. What it did was convert an automatic statutory protection into a notification-dependent one. A payment mode that the government does not notify simply falls outside the statutory bar and can lawfully be charged. Introduced in the Lok Sabha on 4 August 2026 and passed on 6 August, this amendment takes effect from the date of gazette publication rather than retrospectively.
At the time, the Finance Minister told Parliament that no MDR framework had been finalised, that consumers would continue to pay nothing, and that the UPI and Services Steering Committee headed by NPCI would decide the question. That is precisely what then happened.
On 14 September 2026 the government issued the notification contemplated by the amended Section 10A. It specified RuPay-powered debit cards and UPI transactions of up to ₹2,000 as the modes on which no bank or system provider shall impose, whether directly or indirectly, any charge upon a person making or receiving payment.
The legal mechanism is therefore one of subtraction, not permission. Nothing was enacted to authorise a UPI charge. The statutory no-charge protection was redrawn to cover only UPI transactions up to ₹2,000, and above that line the ordinary commercial freedom to price a service reasserted itself. NPCI's framework, announced the following day, occupies exactly the space the notification opened up.
The Reserve Bank of India has publicly supported the move, describing the introduction of MDR on large-value UPI transactions as an important step towards strengthening the long-term sustainability of India's digital payments ecosystem and one that will help UPI continue to scale and innovate.
A persistent misconception is that this is a government levy. It is not. No part of the MDR accrues to the exchequer. The fee is distributed among the participants who actually carry the transaction:
Industry estimates put the annual cost of running UPI operations — servers, fraud prevention, technical support — at roughly ₹20,000 crore. The framework is intended to fund that. The Payments Council of India's chairman has framed the MDR as sustaining UPI's growth and funding investment in cybersecurity and technology infrastructure rather than creating profit pools.
NPCI has also said a dedicated fund will be set up to subsidise and accelerate digital payment infrastructure for small merchants across Tier III to Tier VI regions, the north-eastern states, Jammu and Kashmir and Ladakh, alongside Tier I and Tier II areas. Reporting suggests the fund may receive around ₹700 crore a year, with details to be finalised in consultation with the RBI over the next three months.
UPI charge rumours have circulated repeatedly since 2023, and most were false. This time the change is real — but the misinformation around it is not.
If your business accepts UPI, the month before 15 October is the window to act. The practical exposure depends almost entirely on your ticket-size distribution: a business whose average sale is ₹800 is barely affected, while one whose average sale is ₹15,000 has a new line of cost.
The framework was announced on 15 September and takes effect on 15 October. Some operational detail is still settling, and it would be misleading to present the following as resolved: