UPI has become a part of everyday life in India. From buying vegetables to paying school fees, people of almost every age use UPI to make payments. So, news about new UPI charges may sound worrying. But there is one important thing every UPI user should know: the new charge is mainly for merchants, not for normal customers.
From October 15, 2026, a 0.4% Merchant Discount Rate (MDR) will apply to certain UPI payments made to merchants when the payment is above ₹2,000. The MDR is a charge within the payment system and is not a fee that the customer has to pay.
For example, if you buy something worth ₹3,000 from a shop and pay through UPI, the 0.4% MDR works out to ₹12. However, that ₹12 is a merchant-side charge. The customer is not supposed to pay ₹3,012.
For a ₹50,000 merchant payment, the MDR would be ₹200. For payments of ₹75,000 or more, the MDR is capped at ₹300 per transaction.
There is also good news for everyday UPI users. Person-to-person payments will remain completely free, no matter how much money is transferred. So, sending ₹5,000 to a friend or ₹20,000 to a family member will not attract this MDR.
Payments made to merchants up to ₹2,000 will also remain free under the new framework. Small merchants who receive up to ₹1 lakh a month through UPI QR payments under the specified category will also continue to get zero MDR.
The government says around 96% of merchant UPI transactions will remain unaffected.
For customers, the biggest takeaway is simple: UPI is not becoming a paid service for ordinary users. The new MDR is aimed at certain larger merchant transactions. Customers can continue using UPI for everyday payments without worrying about a new transaction fee being deducted from their bank account.
