New Delhi, September 16, 2026: India’s Unified Payments Interface (UPI) is set for a major change from October 15, with the National Payments Corporation of India (NPCI) introducing a 0.4% Merchant Discount Rate (MDR) on specified UPI payments to merchants above ₹2,000.
The new framework, however, does not mean that consumers will be charged 0.4% for making UPI payments. The MDR is a merchant-side charge, and the government has clarified that it is neither a tax nor a fee collected by the government or NPCI.
What changes from October 15?
Under the revised framework, eligible person-to-merchant (P2M) transactions above ₹2,000 will attract an MDR of 0.4%, subject to a maximum charge of ₹300 per transaction. Payments of up to ₹2,000 to merchants will remain free under the applicable framework.
For certain categories, including utilities, fuel, insurance and railway-related payments, a flat ₹5 MDR will apply instead of the standard 0.4% rate.
Person-to-person payments remain free
UPI transfers between individuals will continue to remain completely free, irrespective of the transaction amount. The Finance Ministry has also stated that around 96% of P2M transactions will remain unaffected because of the ₹2,000 threshold and exemptions for certain small merchants.
The government said the revised framework is intended to support the long-term sustainability of the UPI ecosystem and enable continued investment in its infrastructure, security and expansion.
Why the change matters
UPI has become central to India’s digital payments ecosystem, handling billions of transactions every month. The introduction of MDR on selected higher-value merchant payments creates a new revenue mechanism for banks and other participants involved in processing UPI transactions.
At the same time, the move has triggered discussion among merchants and businesses over whether the additional cost could affect payment preferences or eventually influence pricing. Industry and government representatives have maintained that the framework is designed to keep everyday UPI payments largely unaffected.
For consumers, the key takeaway is simple: sending money to another person remains free, UPI payments up to ₹2,000 to merchants remain free, and the new 0.4% MDR is primarily a charge applicable to eligible higher-value merchant transactions.