UPI users have an important update ahead of the new Merchant Discount Rate (MDR) framework. From October 15, 2026, a 0.4% MDR will apply to specified UPI payments made to merchants above ₹2,000. The move has raised questions about whether customers will have to pay an additional charge.
Finance Minister Nirmala Sitharaman has clarified that the MDR will be borne by merchants and will not be directly charged to customers. She also stated that MDR is neither a tax, cess nor surcharge collected by the government.
What Is the New UPI MDR Rule?
Under the revised framework, a 0.4% MDR will apply to specified person-to-merchant UPI transactions above ₹2,000 from October 15, 2026. The charge will be capped at ₹300 for transactions of ₹75,000 or more.
For example, a ₹10,000 eligible merchant payment would attract an MDR of ₹40, while the maximum MDR for transactions of ₹75,000 or above would remain ₹300.
Person-to-person UPI transfers will continue to remain free. Payments to merchants up to ₹2,000 will also remain outside the MDR framework.
The government has said that around 96% of merchant UPI transactions will remain unaffected. Small merchants with monthly UPI QR collections of up to ₹1 lakh will also remain exempt under the zero-MDR framework.
Will UPI Users Have to Pay the MDR?
According to Finance Minister Nirmala Sitharaman, regular customers will not be directly responsible for paying the new MDR. The charge is to be borne by the merchant receiving the payment.
The Finance Minister also clarified that the MDR is not a government tax, cess or surcharge. The amount is part of the payment ecosystem and is not collected by the Government of India as a tax or levy.
The clarification comes after concerns emerged among consumers and businesses about whether the new fee could increase the cost of making UPI payments.
What About Person-to-Person UPI Transfers?
There is no change for person-to-person UPI transactions under the new framework. Transfers between individuals will continue to remain free, regardless of the amount involved.
The revised MDR applies specifically to eligible merchant transactions above ₹2,000. Therefore, users sending money to family members, friends or other individuals will not be covered by this MDR.
What Does the New Rule Mean for Regular UPI Users?
For most UPI users, the payment experience is expected to remain unchanged. The MDR will apply only to specified merchant transactions above ₹2,000, while person-to-person payments and a large majority of merchant transactions will remain outside the charge.
Banks and other participants in the payment ecosystem are also expected to work with merchants and industry bodies to ensure that the MDR is not passed directly to consumers.
Disclaimer: This article is intended for general informational purposes and is based on government clarifications and publicly available information regarding the UPI MDR framework. Rules, exemptions and operational procedures may be subject to official updates. Users and merchants should refer to the latest notifications from the concerned authorities for confirmed details.