India's new UPI pricing framework takes effect on October 15, 2026, introducing a merchant discount rate on specified higher-value business payments while keeping person-to-person transfers and payments made by consumers free of transaction charges.
The central change is a 0.4% MDR on eligible person-to-merchant UPI transactions above ₹2,000. According to the Ministry of Finance, transactions of ₹75,000 or more will have the MDR capped at ₹300. The charge is paid within the merchant payment ecosystem and is not a fee imposed on the customer.
The framework was announced in September rather than on October 7. The October 15 start date was also confirmed by Reuters, citing the National Payments Corporation of India.
Which UPI payments will attract MDR?
The standard 0.4% rate applies only to eligible P2M transactions above ₹2,000. It does not mean every UPI payment above that amount will carry the same charge because the framework contains several exemptions and special rates.
| Transaction type | MDR treatment |
|---|---|
| Person-to-person UPI transfer | No MDR, regardless of amount |
| Merchant payment up to ₹2,000 | No MDR |
| Eligible standard P2M payment above ₹2,000 | 0.4% |
| Eligible standard P2M payment of ₹75,000 or more | 0.4%, capped at ₹300 |
| Specified essential-sector payment above ₹2,000 | Flat ₹5 MDR |
| Specified capital-market payment | 0.02%, capped at ₹300 |
The essential-sector treatment covers areas including railways, telecommunications, insurance, fuel and agricultural inputs. Instead of the standard percentage charge, eligible transactions above ₹2,000 in those categories will attract a flat ₹5 MDR.
Payments relating to mutual funds, securities, stockbrokers and dealers will carry a 0.02% MDR, capped at ₹300 per transaction.
Which merchants remain exempt?
Small merchants, including street vendors, that receive up to ₹1 lakh per month through UPI QR codes under the person-to-person-merchant category will continue to receive zero-MDR treatment, according to the Finance Ministry.
NPCI has also said that merchant payments made through UPI QR codes in rural and semi-urban locations will not attract the new fees, according to Reuters' report on the framework.
The government estimates that MDR will apply to only about 4% of merchant transactions. Approximately 96% will remain unaffected because they fall below the ₹2,000 threshold or come under zero-MDR provisions.
Consumers are not supposed to pay the MDR
The MDR is not a tax and is not collected by the government or NPCI. It is distributed among participants in the payment system, including banks, payment service providers and UPI application providers.
The government says customers making UPI payments must not be charged the MDR. Banks have been advised to ensure merchants do not pass the charge directly to customers, while UPI application providers are prohibited from imposing platform fees or hidden charges.
Person-to-person UPI transfers will also remain free irrespective of the amount transferred. The Finance Ministry says there will be no monthly quota, volume restriction or tiered cap on free P2P use, although normal bank and NPCI transaction limits for security and risk management will continue to apply.
Why the 0.4% fee changes the economics
The significance of the policy is not that consumers suddenly have to pay to use UPI. The immediate change is that accepting certain UPI payments will now have a measurable cost for merchants who fall outside the exemptions.
For example, a standard eligible ₹10,000 merchant transaction would generate ₹40 in MDR. A ₹50,000 transaction would generate ₹200. Once a standard eligible transaction reaches ₹75,000, the ₹300 cap applies.
Those examples do not apply to exempt small merchants, eligible rural or semi-urban QR transactions, essential-sector transactions or capital-market payments, which are treated differently under the framework.
The new revenue is intended to help support UPI infrastructure, cybersecurity, fraud prevention, reliability and expansion. The Finance Ministry says the framework is designed to improve the long-term sustainability of the payment system while shielding individuals and small merchants from additional costs.
This is where the economic debate begins. MDR creates income for the institutions operating the payment network, but it also creates a new expense for affected merchants. Whether the wider economic benefit from better-funded payment infrastructure outweighs any change in merchant behaviour cannot be determined from the MDR rate alone.
Could merchants indirectly pass on the cost?
The rules prohibit directly charging customers the MDR, but the broader effect on business pricing is not yet known. An affected merchant could absorb the cost within its existing margin, while changes to wider product pricing or payment preferences would be harder to identify as a direct consequence of MDR.
Claims that the new charge will necessarily make goods more expensive, reduce UPI usage or impose a wider economic loss therefore remain unproven before implementation. Equally, the government's stated benefits from a more financially sustainable payment network will need to be assessed against actual outcomes after the system begins operating.
The important distinction is between what is already confirmed and what remains an economic argument. The fee structure, exemptions and October 15 implementation date are confirmed. The eventual effect on prices, merchant behaviour and payment choices is not.
What happens next?
The new MDR structure is scheduled to take effect on October 15. Businesses that fall within the chargeable categories will then begin bearing the applicable UPI acceptance cost, while consumers, P2P transfers, qualifying small merchants and other exempt transactions remain outside the standard MDR.
A separate fund will also be established to promote UPI adoption among small merchants. The government says an amount equivalent to 5% of total MDR collections will be contributed to the fund. NPCI said the details would be finalised in consultation with the Reserve Bank of India within three months, according to Reuters.
After October 15, the most important evidence will be whether the new fee materially changes merchant acceptance, transaction patterns or the way businesses price goods and services. Until that data emerges, the confirmed story is narrower: UPI remains free for consumers and most merchant transactions, but specified larger merchant payments are no longer operating under a universal zero-MDR model.