UPI Payments
UPI payments have become a regular part of everyday life in India. From paying at local shops and restaurants to transferring money to friends and family, UPI offers a fast and convenient way to make digital payments.
However, new rules for certain UPI transactions are set to take effect from October 15, 2026. The new framework introduces a Merchant Discount Rate (MDR) for specified merchant transactions above ₹2,000, while many everyday UPI payments will continue to remain free.
What Are the New UPI Payment Rules?
Under the new framework, person-to-person (P2P) UPI payments will remain completely free, regardless of the amount transferred. This means sending money to a family member, friend or another individual through UPI will not attract MDR.
For person-to-merchant (P2M) transactions, payments up to ₹2,000 will continue to have zero MDR. The government has stated that approximately 96% of merchant transactions will remain unaffected by the new framework.
The change mainly concerns specified merchant transactions above ₹2,000.
What Is MDR in UPI Transactions?
MDR stands for Merchant Discount Rate. It is a charge within the payment ecosystem associated with processing certain merchant payments.
From October 15, an MDR of 0.4% will apply to specified P2M UPI transactions above ₹2,000. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.
Importantly, MDR is not a government tax and is not intended to be collected directly from customers. It is distributed among participants in the payment ecosystem, including banks and payment service providers.
Will Customers Have to Pay for UPI Payments?
One of the biggest questions surrounding the new rules is whether customers will have to pay additional charges.
According to the Ministry of Finance, customers will not be charged MDR directly. Person-to-person UPI payments will remain free, and merchant payments up to ₹2,000 will also remain free.
Therefore, the announcement does not mean that every UPI payment above ₹2,000 will automatically result in a separate fee for the customer.
Special Rules for Small Merchants
Small businesses and street vendors will continue to receive protection under the zero-MDR framework.
Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the specified P2PM category will continue to have zero MDR on their transactions. This includes eligible neighbourhood shops, street vendors and other small businesses.
This provision is intended to prevent additional payment costs from affecting smaller businesses that depend heavily on digital payments.
Special Rates for Essential Sectors
Certain essential and thin-margin sectors will have a separate MDR structure. These include railways, telecommunications, insurance, fuel and agricultural inputs.
For eligible transactions above ₹2,000 in these sectors, a flat ₹5 MDR per transaction will apply.
Capital market-related payments, such as those involving mutual funds, securities, stockbrokers and dealers, will have an MDR of 0.02%, capped at ₹300 per transaction.
What Should Businesses Know?
Businesses that regularly accept high-value UPI payments should understand which transaction category applies to them. They should also review their payment arrangements before the new framework takes effect.
For customers, the key takeaway is simple: UPI payments are not becoming chargeable across the board. P2P payments remain free, payments to merchants up to ₹2,000 remain free, and eligible small merchants continue to receive zero-MDR treatment.
Conclusion
The new UPI transaction framework brings changes mainly for specified higher-value merchant payments, while keeping most everyday UPI usage free. From October 15, 2026, eligible merchant transactions above ₹2,000 will be subject to the new MDR structure.
Understanding these changes can help businesses prepare their payment systems and help customers avoid confusion about UPI charges. As UPI continues to play an important role in India’s digital economy, staying informed about the latest payment rules is important for both businesses and consumers.
Frequently Asked Questions
1. When will the new UPI rules come into effect?
The new MDR framework for specified UPI merchant transactions will take effect from October 15, 2026.
2. Will UPI payments between individuals be charged?
No. Person-to-person UPI transactions will remain completely free, regardless of the amount transferred.
3. What is the MDR for UPI transactions above ₹2,000?
The standard MDR for specified P2M UPI transactions above ₹2,000 is 0.4%. For transactions of ₹75,000 and above, the MDR is capped at ₹300 per transaction.
4. Will small merchants have to pay MDR?
Eligible small merchants receiving up to ₹1 lakh per month through UPI QR codes under the specified P2PM category will continue to receive zero MDR.
5. Do customers need to pay the new MDR directly?
No. MDR is a charge within the merchant payment ecosystem and is not intended to be directly collected from customers.
