From October 15, UPI won’t be quite as fee-free as Indians have grown used to — though it’s worth stressing upfront that this hits merchants, not the customers splitting a dinner bill or paying the neighbourhood grocer. The National Payments Corporation of India (NPCI), the body that operates UPI, has introduced a Merchant Discount Rate on select transactions. It’s the first time such a charge has applied since the government did away with UPI fees altogether in 2020.
Here’s a breakdown of who actually pays, how the numbers work, and what remains untouched.
Will I, as a customer, be charged anything?
No. Every peer-to-peer transfer — sending money to a friend, splitting rent, paying back a family member — stays free, exactly as before. NPCI has been explicit that consumers using UPI will not face any new charges.
So who’s actually paying this fee?
Merchants. Specifically, it’s a 0.4 per cent MDR charged on person-to-merchant (P2M) transactions above ₹2,000. Think of it as similar to the fee merchants already pay on credit card swipes — except UPI’s version is far smaller. For comparison, credit card fees typically run between 1.5 and 2.5 per cent, while debit cards are capped at 0.9 per cent.
Can shopkeepers just pass this cost on to me at checkout?
No — and NPCI has been firm on this point. Merchants cannot add the MDR on top of your bill. Customers will continue to pay only the posted price, regardless of how they choose to pay.
What happens if my payment is under ₹2,000?
Nothing changes for you. Person-to-merchant payments of ₹2,000 or less continue to be completely exempt from the MDR — so whether you’re grabbing chai, running errands at the local store, or paying an auto fare, none of that gets touched by the new rule.
Does the fee keep growing with the transaction size?
Not indefinitely. There’s a hard ceiling of ₹300, which kicks in once a transaction hits ₹75,000 or above. To put that in perspective: a ₹3,000 payment would attract around ₹12 in charges, and a ₹50,000 one roughly ₹200 — but no matter how large the payment gets beyond that, ₹300 is the most it will ever cost.
What about smaller shopkeepers — are they affected too?
Largely, no. NPCI has carved out an exemption for small merchants who receive up to ₹1 lakh a month through UPI, a segment it categorises as P2PM. These businesses stay outside the new fee structure entirely, which effectively shields most neighbourhood vendors and small traders from the change.
What about sectors like railways or fuel stations?
A handful of sectors — railways, telecom, insurance and fuel — follow a different formula altogether. Instead of the 0.4 per cent MDR, they’ll be charged a flat ₹5 fee on transactions above ₹2,000, regardless of the exact amount.
Where does this fee actually go — is it a hidden tax?
Industry voices have pushed back on that framing. The MDR isn’t routed to the government; it’s split among participants in the payment chain — the customer’s bank, the merchant’s bank, the payment service provider, and the UPI app itself (think PhonePe, Google Pay or Paytm). Banks and payment apps are expected to be the primary beneficiaries once the new structure kicks in.
Why introduce a charge now, after five years of “free” UPI?
NPCI has pointed out that the government’s original subsidy was always meant to be a short-term cushion, not a permanent arrangement.
Behind the scenes, keeping UPI running isn’t cheap. Here’s another version, with fresh phrasing and structure:
None of this comes cheap to operate. Keeping UPI’s infrastructure running — along with fraud prevention and technical support — costs an estimated ₹20,000 crore a year, according to industry figures. That’s a hefty bill, especially with monthly transaction volumes now stretching into the billions. NPCI has framed the new fee as a way to keep funding that backbone, from cybersecurity upgrades to customer service improvements.
And the timeline for this?
It kicks in from October 15, 2026. The government had already set the stage in August, amending payment regulations to allow the change. A notification that followed confirmed one key protection remains intact: banks still can’t impose any charge on UPI payments of ₹2,000 or under. In practice, that means small, everyday spending stays untouched, even as larger merchant transactions become subject to the new fee.