India’s revised UPI merchant fee structure is scheduled to come into effect from October 15, 2026. Under the new framework, certain eligible merchants will have to pay a Merchant Discount Rate (MDR) on specified UPI transactions, while customers will continue to use UPI without transaction charges.
The Department of Financial Services outlined the revised structure in its FAQs dated September 15, 2026. The framework includes exemptions for personal transfers, low-value merchant payments and qualifying small vendors.
For businesses covered by the new rules, the additional processing cost will depend on the type and value of the transaction. The government has said the revenue will support the continued development of payment infrastructure, while some traders have raised concerns about the additional cost of accepting digital payments.
Will Customers and Small Shops Pay More?
Customers will not be charged MDR when they send money to another person or make payments to eligible merchants. According to the Finance Ministry’s September 15, 2026 statement, around 96% of person-to-merchant UPI transactions are expected to remain unaffected.
However, this figure refers to the number of transactions and does not mean that 96% of individual customers or businesses automatically qualify for an exemption.
Qualifying small vendors under the Person-to-Person-Merchant (P2PM) category will continue to receive an exemption. Simply receiving more than ₹2,000 in a single transaction does not automatically make an exempt vendor liable to MDR. The classification of the merchant is an important factor in determining whether the fee applies.
Existing UPI QR codes can continue to be used, so merchants do not need to replace their QR codes solely because of the revised fee structure.
Why Is MDR Being Introduced for Some Merchants?
According to the government’s explanation, continued expansion of UPI requires investment in payment infrastructure, cybersecurity and fraud prevention. The government believes subsidies alone may not be sufficient to meet the long-term costs associated with maintaining and expanding the payment ecosystem.
The proposed approach is therefore to charge MDR on selected merchant transactions while keeping UPI payments free for consumers.
Economic commentator A K Bhattacharya supported the idea of selective charges in an analysis published on October 3, 2026, while also raising questions about consultation with merchant associations. His analysis also noted opposition from the Swadeshi Jagaran Manch.
The issue has therefore created a debate between the government’s objective of generating payment-system revenue and concerns among merchants about the additional expense involved in accepting UPI.
Which UPI Transactions Will Attract MDR?
The Finance Ministry’s September 15 statement provides different rates depending on the category of transaction.
| Payment Category | Merchant-Side MDR |
|---|---|
| Personal transfers | Zero |
| Merchant payments up to ₹2,000 | Zero |
| Eligible P2PM vendors receiving up to ₹1 lakh monthly through UPI QR codes | Zero |
| Standard eligible merchant payments above ₹2,000 | 0.4%, capped at ₹300 for payments of ₹75,000 and above |
| Specified sectors, including railways, telecom, insurance and fuel | ₹5 per transaction above ₹2,000 |
| Mutual funds, securities, stockbrokers and dealers | 0.02%, capped at ₹300 |
Merchants will not be permitted to directly recover MDR from customers. UPI applications are also prohibited from adding platform fees or hidden charges to these transactions.
The government has clarified that MDR is paid to participants in the payment system and is not a tax collected by the government.
The ₹2,000 threshold should therefore not be considered separately from the merchant’s classification. A qualifying P2PM vendor may remain exempt, while certain other eligible merchants could be subject to the applicable MDR or a sector-specific rate.
How Did the UPI MDR Rules Evolve?
UPI person-to-merchant transactions had zero MDR from January 2020 following a notification issued on December 30, 2019. The Finance Ministry reiterated this history in its April 18, 2025 statement.
In August 2026, the government indicated that a threshold-based MDR could be introduced for selected merchant transactions. The September 2026 documents subsequently detailed the proposed rates, exemptions and October 15 implementation date.
The framework continues to maintain the principle that consumers will not be charged for making UPI payments.
What the New UPI Rules Mean for Merchants
From October 15, MDR will apply to eligible merchant receipts rather than to customers. Whether a business has to pay will depend first on its account classification and then on the payment category and transaction value.
This means the revised system does not impose a blanket 0.4% charge on every business receiving a UPI payment above ₹2,000. Exempt P2PM vendors and transactions covered by special categories will continue to follow their respective rules.
Frequently Asked Questions
1. When will the revised UPI MDR structure start?
The Department of Financial Services’ September 2026 FAQs specify October 15, 2026, as the commencement date.
2. Who pays MDR on UPI transactions above ₹2,000?
Where applicable, the MDR is charged to the eligible merchant. Customers do not pay the MDR.
3. Can a merchant add MDR to the customer’s bill?
No. Merchants are not permitted to directly pass the MDR on to customers.
4. Will UPI transfers to family members remain free?
Yes. Person-to-person UPI transfers remain exempt, subject to applicable transaction limits.
5. Will every merchant pay 0.4% on payments above ₹2,000?
No. Eligible P2PM vendors may remain exempt, while certain specified sectors have separate rates.
6. Is ₹300 a charge that customers have to pay?
No. The ₹300 figure is the maximum standard merchant-side MDR for eligible transactions of ₹75,000 and above.
Disclaimer
The information provided in this article is for general informational and educational purposes only. UPI rules, fee structures, exemptions and applicable conditions may be revised by the concerned authorities. Readers should verify the latest official guidelines and applicable charges with their bank, payment service provider or the relevant government authority before making business or financial decisions.