The announcement has created confusion among UPI users, with many wondering whether they will have to pay an additional charge when making payments above ₹2,000. However, the new MDR is primarily a merchant-side charge, and ordinary consumers will not be directly charged for making eligible UPI payments.
What Is the New UPI Charge?
Under the new framework, a 0.4% MDR will apply to eligible UPI payments made by customers to merchants when the transaction amount is above ₹2,000.
For example, if a customer makes a ₹3,000 eligible merchant payment through UPI, the MDR would be ₹12. A ₹50,000 transaction would attract an MDR of ₹200.
For transactions of ₹75,000 or more, the MDR will be capped at ₹300 per transaction.
Will Customers Have to Pay the 0.4% UPI Charges?
No. The announced MDR is to be borne by the merchant/payment ecosystem rather than being added directly to the customer's UPI payment.
The Finance Ministry has also clarified that Person-to-Person (P2P) UPI transactions will remain free, regardless of the transaction amount.
This means that sending ₹5,000 to a family member or another individual through UPI will not attract this MDR.
UPI Payments Up to ₹2,000 Remain Free
UPI merchant transactions of ₹2,000 or less will continue to remain outside the MDR framework.
According to information reported following the NPCI notification, these smaller transactions account for more than 95% of P2M UPI transaction volume.
Therefore, customers making everyday low-value purchases through UPI should not see a new transaction fee simply because of the October 15 changes.
What About Small Merchants?
The new framework also provides protection for eligible small merchants.
Small merchants receiving up to ₹1 lakh per month through UPI QR-code payments under the applicable P2PM classification will continue to receive zero-MDR treatment.
This is intended to prevent the new system from increasing payment costs for small businesses and local vendors.
How Much Will Merchants Pay?
For a standard eligible merchant transaction above ₹2,000, the MDR rate is 0.4%.
UPI Charges 0.4% MDR on eligible merchant transactions
| UPI Merchant Payment | 0.4% MDR |
|---|---|
| ₹3,000 | ₹12 |
| ₹5,000 | ₹20 |
| ₹10,000 | ₹40 |
| ₹25,000 | ₹100 |
| ₹50,000 | ₹200 |
| ₹75,000 | ₹300 |
| ₹1,00,000 | Capped at ₹300 |
The ₹300 ceiling applies to transactions of ₹75,000 and above.
Person-to-Person UPI Payments Will Remain Free
One of the most important points in the new rules is the distinction between P2M and P2P transactions.
P2M means a customer paying a shop, business or other merchant.
P2P means one individual sending money to another individual.
The new MDR applies to specified P2M transactions above ₹2,000. P2P UPI payments will continue to remain free.
Why Has MDR Been Introduced?
The new framework is intended to create a more sustainable financial model for the UPI payment ecosystem.
UPI handles billions of transactions every month, requiring continuous investment in payment infrastructure, cybersecurity, fraud prevention and technological development. The government had previously indicated that any future MDR would be limited to selected merchant transactions rather than being a blanket charge on UPI users.
When Will the New UPI Rule Start?
The new MDR framework will come into effect from October 15, 2026.
Banks, payment aggregators, fintech companies and other payment ecosystem participants have been given time to update their systems before the new framework becomes operational.
Key Points at a Glance
UPI MDR Framework — What You Need to Know
- Effective date: October 15, 2026
- MDR: 0.4% on eligible P2M UPI transactions above ₹2,000
- ₹2,000 or below: No MDR
- P2P UPI payments: Remain free
- ₹75,000 and above: MDR capped at ₹300
- Eligible small merchants: Continue to receive zero-MDR treatment under the specified threshold
- Customer: The MDR is not intended to be directly charged to the customer
Conclusion
The new UPI MDR framework does not mean that customers will suddenly have to pay 0.4% every time they make a UPI payment above ₹2,000. The charge applies to specified merchant transactions and is structured as a Merchant Discount Rate.
For ordinary users, UPI payments between individuals will remain free, while payments of up to ₹2,000 to merchants will also remain outside the MDR framework. The new rules will take effect from October 15, 2026.
