UPI is set to see Merchant Discount Rate (MDR) charges on selected high-value merchant payments from October 15, 2026. However, the government has said consumers will not be directly charged for using UPI. The new framework applies a 0.4% MDR to specified person-to-merchant payments above ₹2,000, with a ₹300 cap. Small merchants receiving up to ₹1 lakh per month through eligible UPI QR payments will continue under zero MDR protection. This means the MDR impact on UPI transactions is expected to be limited for most everyday users.Will UPI Charges Affect Consumers?The new MDR framework is designed mainly around merchants rather than individual UPI users.Person-to-person payments will remain completely free, regardless of the amount transferred.Merchant payments up to ₹2,000 will also remain free of MDR, while eligible small merchants retain zero-MDR protection.The Finance Ministry has also advised banks to ensure merchants do not pass MDR costs directly to customers.However, industry executives say the eventual consumer impact could depend on how individual retailers handle their additional costs.P2P UPI transactions will remain free regardless of transaction value.P2M payments up to ₹2,000 will remain free of MDR.Selected P2M payments above ₹2,000 will attract 0.4% MDR.MDR will be capped at ₹300 for transactions of ₹75,000 or more.Eligible small merchants receiving up to ₹1 lakh monthly through UPI QR payments will continue with zero MDR.Why UPI MDR Is ReturningUPI has operated for years under a zero-MDR model for merchant payments, supported by government measures and incentives.The latest framework changes this approach for selected high-value transactions while keeping everyday payments protected.The government says the move is intended to support the long-term sustainability, security and expansion of the UPI ecosystem.MDR is not a government tax; the amount is distributed among participants in the payment ecosystem, including banks and payment application providers.The distinction between customers and merchants is important. The new charges apply to specified merchant transactions, not to people sending money to friends or family. The government has also maintained zero MDR for eligible small merchants, including street vendors and neighbourhood businesses covered by the specified P2PM criteria. This protection is intended to reduce the effect of digital transaction fees on smaller businesses.Read More: UPI Merchant Fee Set With ₹2,000 Transaction Floor For Charges What The Latest Rules MeanFrom October 15, 2026, eligible UPI payment merchants will face a 0.4% MDR on specified person-to-merchant transactions above ₹2,000. For transactions of ₹75,000 or more, the MDR will be limited to ₹300 per transaction. Certain sectors, including railways, telecom, insurance and fuel, will have a flat ₹5 MDR for qualifying transactions above ₹2,000. The framework therefore creates different treatment based on transaction value, merchant category and eligibility.Key HighlightsUPI remains free for person-to-person payments.Payments to merchants up to ₹2,000 remain free of MDR.Selected higher-value merchant payments will carry 0.4% MDR.MDR is capped at ₹300 for transactions of ₹75,000 and above.Eligible small merchants receiving up to ₹1 lakh monthly through UPI QR codes remain protected by zero MDR.Banks have been advised to prevent merchants from passing MDR directly to customers.What Consumers Should KnowThe latest rules mean most routine UPI users should not see a direct transaction charge when making payments.Large retailers and restaurants may choose to absorb the merchant cost, while some smaller businesses could consider changing how they handle payment costs.Industry representatives have said the effect could vary between businesses depending on their margins and UPI payment volumes.For consumers, the key point is that MDR is structured as a merchant-side charge rather than a fee imposed on UPI users.Disclaimer: This news is provided only for knowledge purposes and to provide general news information; readers should check official updates for any further changes.
