UPI transactions are set for a significant change from October 15, 2026, with certain merchant payments above Rs 2,000 becoming subject to a Merchant Discount Rate (MDR). However, person-to-person (P2P) transfers will continue to remain free, irrespective of the amount involved.
The revised framework will apply specifically to selected person-to-merchant (P2M) transactions. There will also be no monthly quota or transaction-volume restriction on free P2P UPI payments.
What will happen to UPI merchant payments?
Under the new framework, eligible P2M UPI transactions above Rs 2,000 will carry an MDR of 0.4 per cent. For payments of Rs 75,000 or more, the MDR will be capped at Rs 300 per transaction.
For example, a Rs 5,000 payment to a merchant would generate an MDR of Rs 20. However, this does not mean the customer will have to pay Rs 5,020.
The MDR is charged within the merchant-payment ecosystem, and banks have been instructed not to transfer this cost to customers.
The revised system is therefore not a blanket fee on UPI users. It applies to specified merchant-side transactions covered by the new framework.
P2P UPI payments will remain free
People transferring money directly to another individual will continue to use UPI without MDR, even when the transaction value exceeds Rs 2,000.
The government has also clarified that free P2P transactions will not be subject to any monthly quota or volume-based restriction.
As a result, transfers made through UPI between family members, friends or other individuals will remain free under the new framework.
Rs 5 MDR for selected essential services
Certain essential-service categories will have a separate fee structure. P2M transactions above Rs 2,000 involving railways, telecom, insurance, fuel and agriculture inputs will attract a flat MDR of Rs 5.
This replaces the standard 0.4 per cent rate for transactions covered under these categories.
Capital-market payments to have lower MDR
Transactions involving mutual funds, securities, stock brokers and dealers will attract a much lower MDR of 0.02 per cent, with the charge capped at Rs 300 per transaction.
For instance, a Rs 1 lakh capital-market payment would attract an MDR of Rs 20. For a Rs 15 lakh transaction, the calculated MDR would be Rs 300, reaching the prescribed cap.
The 0.02 per cent rate is substantially lower than the standard 0.4 per cent MDR applicable to specified merchant transactions above Rs 2,000.
Small merchants remain under zero-MDR framework
Small merchants will continue to receive the benefit of zero MDR when their UPI QR collections remain within Rs 1 lakh per month.
The government has said the revised MDR framework will affect around 4 per cent of merchant transactions, meaning the changes will apply to a relatively limited section of the overall UPI ecosystem.
UPI apps will also not be permitted to impose platform fees or hidden charges on customers for making UPI payments. Banks have similarly been directed not to pass the MDR cost on to users.
In addition, 5 per cent of the MDR collected under the new framework will be directed towards a dedicated fund for small merchants.
The government has said the framework is intended to improve the financial sustainability of the UPI ecosystem while supporting its continued expansion, particularly across rural and semi-urban areas.
With the new rules scheduled to take effect on October 15, the key difference for users will be between P2P and P2M payments. Person-to-person UPI transfers will remain free, while specified merchant payments above Rs 2,000 will attract MDR. Capital-market transactions will carry a lower 0.02 per cent MDR, subject to the Rs 300 cap.