Key Facts
- Applies only to Person-to-Merchant (P2M) UPI payments above ₹2,000, effective October 15, 2026.
- P2P transfers (friends, family, self-transfers) remain completely free, at any amount.
- MDR rate: 0.4%, capped at a maximum of ₹300 per transaction.
- Select categories (railways, telecom, insurance, fuel, electricity, water, piped gas) attract a flat ₹5 instead of the percentage rate.
- Recurring UPI AutoPay mandates — including SIP debits — are exempt from this MDR.
You may have seen forwarded messages this week claiming “UPI Payments Above ₹2,000 to Attract 0.4% MDR.” This claim is true. NPCI has confirmed a revised Merchant Discount Rate (MDR) framework for UPI, effective October 15, 2026. It marks the first UPI fee since 2020. But most forwards miss who actually pays it. This article checks the numbers against NPCI’s own clarifications. It explains what changes for an ordinary UPI user, a small shopkeeper, and a mutual fund investor.
| Transaction Value | Applicable MDR | MDR Paid by Merchant |
|---|---|---|
| Up to ₹2,000 | 0% (free) | ₹0 |
| ₹3,000 | 0.4% | ₹12 |
| ₹10,000 | 0.4% | ₹40 |
| ₹30,000 | 0.4% | ₹120 |
| ₹50,000 | 0.4% | ₹200 |
| ₹75,000 and above | Capped | ₹300 (maximum) |
What regulators say
Why is this happening now?
UPI has stayed free for consumers since it launched. Since 2020, it has stayed free for most merchants too. The government funded this through incentive schemes. But NPCI now says that subsidy was only short-term support, not a permanent arrangement. Running the UPI network costs the ecosystem an estimated ₹20,000 crore a year. That covers servers, fraud monitoring, settlement infrastructure, and cybersecurity. So the new MDR aims to build a sustainable revenue pool for banks, payment apps, and aggregators. It does this without touching the free promise that has driven UPI’s mass adoption.
The legal basis
This change did not happen through a press release alone. Parliament passed the Taxation and Other Laws (Amendment) Bill, 2026. This bill amends Section 10A of the Payment and Settlement Systems Act, 2007. That amendment empowers the “UPI and Services Steering Committee,” headed by NPCI, to set MDR structure and caps going forward. In August 2026, the Finance Ministry also had to publicly deny a related claim. Some reports linked this move to external pressure, including a US Trade Representative report questioning India’s zero-MDR policy. The ministry called such claims “completely false and misleading.”
Who exactly pays the 0.4% MDR?
Consumers: no change
NPCI is direct on this point. When you pay via UPI — for shopping, bills, or scan-and-pay — you will not pay anything extra. UPI apps like GPay, PhonePe, and Paytm cannot add a platform fee to any UPI transaction; NPCI’s framework bars this outright. So if a merchant terminal ever adds a “UPI charge” line item at checkout, that goes against NPCI’s rules.
Merchants: MDR applies above ₹2,000
The charge sits with merchants who accept P2M payments above ₹2,000. Banks and payment aggregators deduct it from the settlement amount automatically. So the merchant does not need to do anything to “pay” it — the system nets it off before the money reaches their account.
A garment shop accepts a ₹10,000 UPI payment for a saree on October 20, 2026.
MDR applicable: 0.4% of ₹10,000 = ₹40.
The shop receives ₹9,960 in settlement; the customer’s UPI app shows the full ₹10,000 debited and “Payment Successful” — no extra charge appears on the customer’s side.
Small vendors and P2PM: mostly unaffected
NPCI has clarified something important for small merchants. Vendors under the Person-to-Person-Merchant (P2PM) category — typically those receiving up to ₹1 lakh a month via a personal UPI QR code — continue to enjoy zero MDR. NPCI also estimates that over 95% of low-value P2M transactions stay exempt, simply because they fall under the ₹2,000 threshold.
Exceptions worth knowing
Flat ₹5 fee categories
Some essential-services categories skip the 0.4% rate entirely. These include railways, telecom, insurance, fuel, electricity distribution, municipal water, and piped natural gas. Instead, they attract a flat ₹5 MDR per eligible transaction above ₹2,000, regardless of the amount.
Capital market transactions
Payments for mutual funds, securities, stockbrokers, and broker wallet top-ups fall under a separate rate: 0.02%, capped at ₹300. In practice, this is negligible. A ₹50,000 lump-sum mutual fund purchase via UPI would attract roughly ₹10 in MDR. The payment gateway or AMC ecosystem bears this cost — it doesn’t come out of your investment amount.
UPI AutoPay / recurring mandates
If you run your SIPs, insurance premiums, or loan EMIs through UPI AutoPay (e-mandate), this MDR framework does not apply to those recurring debits. So your monthly SIP instalment stays unaffected by this change.
What should you actually do about this?
- As a consumer: nothing changes in your day-to-day UPI use. Keep paying as usual. If a merchant adds a separate “UPI fee” to your bill, question it — that isn’t sanctioned by this framework.
- As a small business owner: if your average ticket size often exceeds ₹2,000, add the MDR cost (0.4%, capped at ₹300) to your payment-processing costs from October 15, 2026. Treat it like you already treat card-machine charges.
- As an investor: your SIPs via AutoPay and most mutual-fund UPI payments stay unaffected in cost terms. You don’t need to change your investment plan because of this.
Frequently Asked Questions
Will I, as a customer, be charged extra for paying via UPI after October 15, 2026?
No. NPCI has clarified that UPI remains free for consumers for both P2P and P2M payments. Also, the 0.4% MDR applies only on the merchant’s side of P2M transactions above ₹2,000, and UPI apps cannot add any platform fee to your payment.
Can a merchant add the MDR as a separate charge on my bill?
No. NPCI has stated that merchants cannot pass the MDR charge to customers; consumers pay only the posted price. So a visible “UPI surcharge” line at checkout would go against this framework.
Will sending money to family or friends via UPI cost anything?
No. Person-to-Person (P2P) transfers stay completely free, regardless of amount. This includes self-transfers between your own linked bank accounts, both before and after October 15, 2026.
Does this MDR apply to my SIP payments made via UPI AutoPay?
No. Recurring UPI AutoPay mandates are exempt from this MDR framework. This covers most SIP, insurance premium, and EMI debits, so they continue as before.
What is the maximum MDR a merchant can be charged on one transaction?
NPCI caps the MDR at ₹300 per transaction. This cap kicks in from a transaction value of roughly ₹75,000 upward, since 0.4% of ₹75,000 already equals ₹300.
Are all merchant categories charged the same 0.4%?
No. Railways, telecom, insurance, fuel, electricity, water, and piped gas payments attract a flat ₹5 instead of 0.4%. Meanwhile, capital market transactions (mutual funds, securities, broker top-ups) attract a much lower 0.02%, capped at ₹300.
Might merchants quietly raise prices to cover this cost instead of surcharging?
The framework only bars a visible, transaction-level surcharge. It cannot control whether a merchant adjusts general catalogue pricing over time to absorb a small cost increase. This mirrors card-payment MDR, which has worked the same way for years without ever appearing on a price tag.
What is the legal basis for NPCI introducing this MDR?
Parliament’s Taxation and Other Laws (Amendment) Bill, 2026 amended Section 10A of the Payment and Settlement Systems Act, 2007. This empowers the NPCI-headed UPI and Services Steering Committee to decide MDR structure and caps. The Finance Ministry confirms this is a domestic policy decision, not the result of external trade pressure.
Further reading
• What is e-Mandate? Is NPCI-Backed Auto-Debit Safe for SIP, Insurance and Loan EMIs?
• Mutual Fund & SIP Investment Services in Chennai
• Financial Planning Services, Chennai
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