The new UPI Merchant Discount Rate (MDR) framework is scheduled to come into effect from October 15, 2026. Under the revised system, a 0.4% MDR will apply to certain person-to-merchant (P2M) UPI transactions above ₹2,000. Importantly, the charge will be paid by eligible merchants rather than consumers.
The announcement has triggered discussion among traders and retailers, particularly those handling larger-value digital payments. Some merchant groups have also raised concerns about the additional cost, while the government and NPCI have clarified that ordinary consumers will continue to use UPI without a transaction fee.
How Will the New UPI Charge Work?
From October 15, eligible P2M UPI payments above ₹2,000 will attract an MDR of 0.4%. The charge will be borne by the merchant and will not be directly collected from the customer. For transactions of ₹75,000 or more, the MDR will be capped at ₹300.
UPI payments between individuals will remain completely free, regardless of the amount transferred. Payments to merchants up to ₹2,000 will also remain free, along with transactions covered by the zero-MDR framework for small merchants. According to the Ministry of Finance, around 96% of P2M UPI transactions will remain unaffected.
The revised framework also includes separate MDR arrangements for certain categories, including fuel, railways, telecom and insurance payments, where a flat fee can apply to eligible transactions above ₹2,000.
Will Customers Have to Pay the UPI Charge?
According to the government and NPCI, consumers will not be required to pay the new MDR. The fee is imposed on the merchant side, and banks have been advised to ensure that the charge is not passed on to customers.
The Ministry of Finance has also clarified that MDR is not a tax or a government levy. The amount is distributed among participants in the payment ecosystem, including banks and payment application providers, to support the operation and expansion of UPI infrastructure.
Why Are Merchants Concerned?
The introduction of MDR has raised concerns among some retailers and merchant associations because businesses accepting a large number of higher-value UPI payments could see an increase in payment-related costs. Retail groups have argued that merchants with relatively small margins could find the additional expense difficult to absorb.
At the same time, the government has maintained that the revised system is designed to keep UPI free for consumers while creating a payment structure intended to support the long-term sustainability of the digital payments ecosystem.
The actual impact on merchants and payment patterns will become clearer after the new framework takes effect on October 15.
Disclaimer: This article is based on information and official clarifications available at the time of publication. UPI charges, exemptions and transaction rules may be subject to changes or further clarification. Readers should refer to NPCI, the Ministry of Finance or their bank for the latest applicable rules.