UPI transactions have become a routine part of daily life for a large number of people across India. Scanning a QR code now handles everything from purchasing groceries and settling utility bills to transferring funds to relatives and arranging food deliveries, with each transaction completing in a matter of seconds.
Starting 15 October 2026, a revised Merchant Discount Rate (MDR) will take effect on qualifying UPI transactions processed by merchants where the payment amount exceeds ₹2,000. Debate has arisen over whether UPI transactions could attract charges for users following the announcement.
The administration has clarified that peer-to-peer UPI transfers and merchant payments below ₹2,000 will both be exempt from the proposed MDR charges. A merchant discount rate of 0.4% will be levied on designated person-to-merchant UPI payments exceeding ₹2,000 under the revised policy structure.
To illustrate, a qualifying transaction of ₹10,000 would incur a fee of ₹40, whereas a transaction totalling ₹50,000 would generate a charge of ₹200. A ceiling of ₹300 applies to each payment where the MDR is levied on amounts of ₹75,000 and above.
The levy sits within the merchant-payment infrastructure and is not intended to be passed on to consumers as a distinct UPI charge. Transfers between individuals will carry no charge, irrespective of the sum involved. Sending money directly to another person differs from purchasing goods or services through a business.
Routine transactions are unlikely to see any notable shifts. Transactions conducted via UPI where the amount received by a vendor falls within the ₹500, ₹1,000, or ₹2,000 range remain exempt from the revised MDR framework. According to official projections, approximately 96% of merchant-side UPI transactions will be unaffected by the updated regulatory framework.
UPI has become a foundational component of India's digital-payment ecosystem. Each QR-code transaction relies on an interconnected network of financial institutions, payment processors, digital platforms, and protective infrastructure that remains available at all times. Authorities have outlined that the MDR framework is designed to bolster the UPI ecosystem's durability and growth over time.
Unlike a government-imposed tax, MDR functions as a charge within the payments infrastructure, shared across the various entities involved in processing transactions. Qualifying small businesses that process UPI QR transactions of up to ₹1 lakh monthly under the designated category will retain their exemption from merchant discount rate charges.
The shift away from cash toward electronic transactions has been especially pronounced among independent shops, market traders, and local service providers. Under the rules, the MDR fee is not to be passed on to consumers as a separate charge. Retailers have been advised by authorities not to transfer the MDR cost directly onto consumers.
Enterprises nonetheless face expenses tied to processing payments. Whether businesses absorb the financial burden of the revised payment rules or alter their operations in response remains to be seen until the framework is actually in place.
A flat charge of ₹5 per transaction will apply to qualifying payments exceeding ₹2,000 across sectors including railways, telecommunications, insurance, fuel, and agricultural inputs under the MDR framework. Designated capital-market dealings — encompassing certain payments through mutual funds, securities, and brokerage services — will attract a reduced MDR rate of 0.02%, capped at ₹300.
Adjustments to daily payment behaviour are unlikely to be required for the majority of consumers following the introduction of the new MDR. Transfers between individuals via UPI carry no charge. Transactions with merchants valued below ₹2,000 are exempt from MDR charges.
Under the applicable framework, designated merchant payments exceeding ₹2,000 attract a 0.4% MDR charge, with a ceiling of ₹300 imposed on any transaction valued at ₹75,000 or above. Qualifying small traders may remain within the zero-MDR structure, while consumers are not to be levied MDR as a distinct UPI charge. The updated regulations take effect on 15 October 2026.
The updated MDR structure aims to build a financially viable charging model for higher-value commercial transactions, while routine low-value payments and transfers between individuals remain exempt from fees. Data is drawn from the National Payments Corporation of India and the Union Finance Ministry.
