UPI is entering a new phase in 2026. From October 15, 2026, a new Merchant Discount Rate (MDR) will apply to specified Person-to-Merchant (P2M) UPI transactions above ₹2,000.
The standard MDR is 0.4%, with a maximum MDR of ₹300 per transaction for payments of ₹75,000 and above.
However, this does not mean that customers will start paying a UPI transaction fee.
Person-to-Person (P2P) UPI payments will continue to remain free. Merchant payments up to ₹2,000 will also remain free, while eligible small merchants covered under the zero-MDR framework will continue to be protected.
The government estimates that approximately 96% of P2M UPI transactions will remain unaffected by the new framework.
This article explains the latest UPI charges, MDR rates, exemptions, ₹2,000 threshold, ₹300 cap, small-merchant rules, GST treatment and what the changes mean for businesses and consumers.
🔴 UPI Charges Latest Update — October 2026
Effective date: October 15, 2026
- P2P UPI: No MDR
- P2M up to ₹2,000: No MDR
- Specified P2M above ₹2,000: 0.4% MDR
- ₹75,000 and above: MDR capped at ₹300
- Customer: Does not pay MDR
- Eligible small merchants: Continue under the zero-MDR framework
- Essential/thin-margin sectors: ₹5 flat MDR on specified transactions above ₹2,000
- Capital-market transactions: 0.02% MDR, subject to a ₹300 cap
The new MDR is a merchant-side payment ecosystem charge and is not a tax collected by the government.
Important: The rules apply only to specified merchant transactions. Therefore, the statement “all UPI payments above ₹2,000 will be charged 0.4%” is not accurate.
Key UPI MDR Changes
- P2P UPI payments remain free.
- Merchant payments up to ₹2,000 remain free.
- Eligible small merchants receiving up to ₹1 lakh monthly through UPI QR may continue to receive zero MDR.
- Standard MDR: 0.4% on eligible P2M transactions above ₹2,000.
- MDR cap: ₹300 per transaction for payments of ₹75,000 or more.
- Customers should not be charged MDR separately.
- Around 96% of P2M transactions are expected to remain unaffected.
Simple Examples
| Payment | MDR |
|---|---|
| ₹2,500 | ₹10 |
| ₹10,000 | ₹40 |
| ₹50,000 | ₹200 |
| ₹75,000 | ₹300 |
| ₹1,00,000 | ₹300 cap |
MDR is a merchant-side payment-processing charge, not a government tax.
Frequently Asked Questions
Do customers have to pay UPI charges?
No. Customers should not be charged MDR separately for eligible UPI payments. Merchants and their payment providers handle any applicable MDR.
Which merchants may have to pay MDR?
Eligible merchants accepting specified P2M payments above ₹2,000 may pay the standard 0.4% MDR. Some eligible small merchants receiving up to ₹1 lakh monthly through UPI QR may continue to receive zero MDR. Special sectors and financial-market categories may have different rates.
How does the ₹300 MDR cap work?
For eligible payments of ₹75,000 or more, MDR is capped at ₹300 per transaction. For example, 0.4% of ₹1,00,000 would be ₹400, but the applicable MDR cannot exceed ₹300.
Are P2P UPI payments still free?
Yes. Person-to-Person payments, such as sending money to family or friends, remain free. The changes apply to specified merchant transactions, not ordinary P2P transfers.
Special Categories
Eligible transactions in sectors such as railways, telecom, insurance, fuel and agricultural inputs may attract ₹5 per transaction.
Payments related to mutual funds, securities, stockbrokers and dealers may attract 0.02% MDR, capped at ₹300.
Businesses should confirm their category with their acquiring bank or payment provider.
What Businesses Should Do
- Check your UPI merchant category.
- Review monthly UPI collections.
- Monitor transaction values above ₹2,000.
- Check settlement statements after 15 October 2026.
- Do not add a separate UPI surcharge to customer bills.
UPI MDR and payment gateway charges are different. Your total payment cost may also include gateway fees, taxes and settlement charges.
BusinessZindagi Tools
Use the Payment Gateway Charge Calculator to estimate payment costs and the Profit Margin Calculator to understand their impact on margins.
Final Takeaway
UPI is not becoming universally chargeable. Most consumers and small businesses will continue to use UPI without additional charges. Businesses handling higher-value merchant payments should review their category, settlement terms and payment costs before 15 October 2026.
Useful BusinessZindagi Resources
Payment Gateway Charge Calculator — Estimate payment-processing costs.
Profit Margin Calculator — Measure the impact of payment charges on margins.
MSE-GIFT 2026 — Explore green finance support for eligible MSMEs.
Zoho Books for Business Accounting
Zoho Books helps businesses manage invoices, expenses, inventory, taxes and payment records.
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Official Sources
Ministry of Finance / Press Information Bureau
Read the official government clarification
National Payments Corporation of India (NPCI)
Visit the official NPCI website
Zoho Books
Visit the official Zoho Books website
Editorial Disclaimer
This article is for general educational purposes. UPI/MDR rules, merchant categories and settlement charges may vary by official notifications and payment providers. Verify the latest terms with your bank, payment provider and official sources.
AI-Assisted Content Disclaimer
This article was prepared with AI assistance and reviewed for BusinessZindagi’s audience. Official government and regulatory sources remain the primary authority.
Last updated: 16 September 2026