TL;DR
- From 15 October 2026, a 0.4% MDR applies to eligible bank-account-funded UPI person-to-merchant payments above ₹2,000, capped at ₹300 per transaction.
- Person-to-person transfers remain free, and the MDR is charged on the merchant side – not directly to the consumer.
- Small merchants receiving up to ₹1 lakh per month through UPI QR payments remain exempt under the P2PM framework.
- Specified essential and thin-margin categories pay a flat ₹5 merchant fee above ₹2,000, while eligible capital-market payments have a separate 0.02% rate.
- Merchants should separate the new network MDR from payment-gateway platform fees and confirm how each appears in pricing, settlements and tax invoices.
UPI is not becoming chargeable for every customer or every transaction. The change taking effect on 15 October 2026 applies to a defined group of person-to-merchant payments above ₹2,000.
For most consumers, the payment experience remains the same. Person-to-person transfers stay free, and the Merchant Discount Rate (MDR) is charged to the merchant side of an eligible transaction. Small merchants and several transaction categories receive exemptions or lower rates.
The practical question for a business is therefore not “Will UPI now charge everyone?” It is: “Which of my merchant transactions are covered, what rate applies, and how will it appear in settlements?”
What Is UPI MDR?
MDR stands for Merchant Discount Rate. It is a payment-acceptance charge paid by the merchant and distributed among participants involved in processing the transaction, such as the payer’s bank, the merchant-acquiring bank, payment apps and payment service providers.
UPI had operated under a zero-MDR regime for bank-account-funded transactions since January 2020. In 2026, Parliament passed the Taxation and Other Laws (Amendment) Bill, changing the legal framework that had prevented charges on prescribed UPI and RuPay debit-card payments. The bill’s legislative history records its passage through both Houses in August 2026.
NPCI subsequently announced the new rate structure for select UPI merchant transactions through its official communications and UPI circulars. The revenue is intended to support continued investment in infrastructure resilience, cybersecurity, innovation and customer service.
The operating cost is significant. Industry estimates cited in the policy discussion put the annual cost of running the UPI ecosystem at roughly ₹20,000 crore. That should be treated as an industry estimate rather than an audited cost published by NPCI.
Also read: Before applying the merchant rules, understand the difference between a P2P transaction and a merchant payment. The new standard MDR does not apply to ordinary person-to-person transfers.
New UPI MDR Rates from 15 October 2026
The table below summarises the announced framework for bank-account-funded UPI payments.
| Transaction category | Transaction value | Merchant-side MDR |
|---|---|---|
| P2P transfers | Any amount | Zero |
| Eligible P2PM small-merchant QR payments | Any amount within the qualifying framework | Zero |
| Standard P2M payment | Up to ₹2,000 | Zero |
| Standard P2M payment | Above ₹2,000 and below ₹75,000 | 0.4% |
| Standard P2M payment | ₹75,000 and above | Capped at ₹300 |
| Specified essential/thin-margin categories | Above ₹2,000 | Flat ₹5 |
| Eligible capital-market payments | Any covered amount | 0.02%, capped at ₹300 |
| SIPs and qualifying recurring UPI standing instructions | Covered recurring payments | Zero under the announced MDR framework |
This table covers the network-level MDR described in the announced framework. A payment gateway may separately charge platform, integration or value-added service fees under its commercial agreement.
Examples: How Much MDR Will a Merchant Pay?
For a standard eligible P2M transaction, the formula is:
MDR = 0.4% of the transaction value, subject to a ₹300 cap
| Customer payment | Calculation | Merchant-side MDR |
|---|---|---|
| ₹2,000 | Exempt threshold | ₹0 |
| ₹3,000 | ₹3,000 × 0.4% | ₹12 |
| ₹10,000 | ₹10,000 × 0.4% | ₹40 |
| ₹50,000 | ₹50,000 × 0.4% | ₹200 |
| ₹75,000 | ₹75,000 × 0.4% | ₹300 |
| ₹1,00,000 | ₹400 before cap | ₹300 |
The ₹300 cap starts to matter at ₹75,000 because 0.4% of ₹75,000 equals ₹300.
For businesses adding UPI to a website or app, this guide to UPI payment integration explains intent, QR, SDK and payment-status flows beyond the pricing calculation.
What the New UPI Charges Mean for Consumers
Consumers are not directly charged the MDR. The published statements around the framework make four distinctions:
- P2P transfers to friends, family or one’s own account remain free.
- A customer paying a merchant does not see the MDR added as a UPI transaction fee.
- UPI app providers are prohibited from adding platform fees or hidden charges to users under this framework.
- Banks have been advised to ensure that merchants do not pass the MDR to customers.
NPCI also said merchants should not inflate shelf prices to recover the fee. The more precise compliance statement, however, is that businesses should not add a separate UPI surcharge or misrepresent the merchant-side MDR as a consumer UPI charge.
Transaction limits are separate from pricing. Bank- and category-level limits remain risk controls, not slabs determining whether a consumer pays a fee. The Cashfree guide to UPI transaction limits explains why limits can differ by bank, transaction type and approved merchant category.
Small Merchants: How the P2PM Exemption Works
Small merchants receiving up to ₹1 lakh per month through UPI QR payments into their bank accounts remain at zero MDR under NPCI’s Person-to-Person Merchant, or P2PM, framework.
This category is intended for micro-businesses such as local shops and street vendors that receive UPI payments without a standard large-merchant acquiring setup. The important conditions are:
- The merchant must be classified under the P2PM framework by the bank or acquirer.
- Monthly qualifying UPI receipts must remain within the ₹1 lakh threshold.
- A merchant receiving more than ₹1 lakh per month for three consecutive months can be moved to the standard P2M category.
NPCI said existing small-merchant QR codes do not need to be replaced merely because of the MDR change. Merchants should still confirm their classification with the bank or payment provider instead of assuming that every personal-looking QR qualifies.
For businesses deciding between a basic QR and an integrated checkout, this guide to merchant QR codes explains static and dynamic QR use cases. The Cashfree UPI QR code also supports payment notifications and reconciliation workflows for eligible business accounts.
Also read: A payment gateway for a small business becomes useful when the business needs online checkout, reconciliation, refunds and multiple payment methods beyond a standalone QR.
Special ₹5 MDR Categories
Specified essential-service and thin-margin categories will pay a flat ₹5 merchant fee on covered UPI payments above ₹2,000 instead of the standard 0.4%.
The categories reported in the Finance Ministry and NPCI statements include:
- Railway payments
- Fuel purchases
- Agricultural inputs
- Credit-card dues
- Telecom and utility bills
- Insurance premiums
- Tax payments
Transactions up to ₹2,000 remain zero MDR. Merchants should rely on their assigned Merchant Category Code and acquiring setup rather than self-classifying a transaction. A school, hospital, utility intermediary or multipurpose platform may not receive a special rate merely because one part of its business resembles a listed category.
Capital-Market Payments
Covered UPI payments for mutual funds, securities and registered stockbrokers have a separate MDR of 0.02%, capped at ₹300.
For example:
- A ₹50,000 covered investment payment produces ₹10 in MDR.
- A ₹5 lakh payment produces ₹100 in MDR.
- The ₹300 cap is reached at ₹15 lakh.
SIP payments made through qualifying recurring instructions remain outside this 0.02% charge under the announced framework.
UPI AutoPay and Recurring Payments
Qualifying UPI AutoPay and recurring standing instructions such as SIPs, utility bills and OTT subscriptions do not attract the newly prescribed MDR in the announced structure.
That does not necessarily make recurring collection cost-free for the merchant. A payment provider may charge separate fees for mandate creation, presentation, retry logic, reconciliation or subscription-management services.
Cashfree’s explanation of how UPI AutoPay works covers mandate creation and recurring debit flows. Businesses evaluating the product can separately review UPI AutoPay and the broader recurring-payments workflow rather than treating zero network MDR as zero total processing cost.
RuPay Credit Cards and Credit Lines on UPI
The new 0.4% framework applies to eligible bank-account-funded UPI P2M transactions. A payment made using a RuPay credit card linked to UPI or a pre-sanctioned credit line uses a credit instrument and follows the commercial and regulatory rules applicable to that product.
Merchants should therefore avoid labelling every UPI-looking transaction as a standard bank-account UPI payment. The underlying funding source affects acceptance, pricing and settlement treatment.
This guide to RuPay credit-card payments on UPI explains how the customer selects the linked card within a UPI app.
UPI MDR vs Payment-Gateway Platform Fees
This is the most important operational distinction for merchants.
| Charge | What it covers | Who sets it |
|---|---|---|
| UPI MDR | The announced merchant-side network charge for eligible UPI transactions | Applicable regulatory/network framework |
| Gateway platform fee | Checkout, APIs, SDKs, dashboards, reports and related payment services | Payment provider’s commercial agreement |
| GST and government levies | Tax applied where legally applicable | Government |
| Value-added product fees | Features such as instant settlement, subscriptions or specialised workflows | Payment provider’s commercial terms |
A “zero platform fee” offer does not automatically mean that a newly applicable network MDR, taxes or every payment method is waived. Merchants should read the eligible-transaction list and obtain written clarification on how the October MDR will appear.
Cashfree publishes its current commercial terms on the payment-gateway pricing. Its existing promotional offer and exclusions should be evaluated separately from the statutory UPI MDR taking effect on 15 October.
What Merchants Should Do Before 15 October 2026
1. Estimate the covered transaction share
Segment UPI P2M payments by value, merchant category and funding source. Calculate how many standard transactions exceed ₹2,000 and the average MDR per order.
2. Confirm merchant classification
Small merchants should verify whether they are onboarded as P2PM and whether the ₹1 lakh monthly threshold is measured across the relevant receiving setup.
3. Review the gateway agreement
Ask whether the network MDR will be absorbed, passed through or shown separately. Also confirm how refunds, partial refunds, failed payments and taxes affect the charge.
4. Update settlement reconciliation
Finance reports should distinguish the gross payment, UPI MDR, platform fee, tax, refund adjustment and net settlement. The reconciliation process should match each deduction and adjustment with the final bank credit.
5. Check the checkout mix
UPI may remain the most economical option for many transactions, but merchants should compare total acceptance cost and conversion across UPI, cards and net banking. A multi-mode checkout also lets customers choose an alternative when the preferred rail is unavailable or unsuitable.
6. Review integration and reporting
Businesses using a hosted checkout, SDK or direct API should confirm that payment-method and settlement reporting can identify the relevant UPI transaction type. Cashfree’s Payment Gateway integration overview outlines the available implementation models.
7. Protect working capital
MDR and settlement time affect cash flow differently. Businesses that need earlier access to eligible captured funds can evaluate Instant Settlements separately from payment-processing charges.
Also read: UPI payments for businesses explains the broader collection, QR and settlement workflow in which MDR is only one operating cost.
What Cashfree Merchants Should Check
Cashfree’s UPI stack supports intent, dynamic QR, WhatsApp links and collect flows through its UPI Payment Gateway. Before the new framework becomes effective, merchants should check:
- Their applicable merchant category and UPI funding-source mix
- How the new MDR will be reflected in commercial terms and settlement reports
- Whether a promotional platform-fee waiver covers or excludes any network charge
- The treatment of refunds and partially refunded transactions
- Whether custom enterprise pricing changes the presentation of charges
Do not assume the gateway’s standard rate, a limited-period promotion and the new UPI MDR are the same charge. The provider’s current agreement and invoices are the controlling commercial records.
Frequently Asked Questions
Will consumers pay UPI charges after 15 October 2026?
No direct consumer MDR is prescribed under the announced framework. The charge applies on the merchant side of eligible P2M payments. P2P transfers remain free.
What is the MDR on a ₹3,000 merchant payment?
For a standard eligible P2M payment, 0.4% of ₹3,000 is ₹12. A special-category or exempt transaction may be treated differently.
What is the maximum UPI MDR a merchant will pay per transaction?
The standard P2M charge is capped at ₹300, reached at a transaction value of ₹75,000. The cap does not mean that every transaction above ₹75,000 is permitted; applicable UPI transaction limits still apply.
Are UPI payments up to ₹2,000 free?
Eligible bank-account-funded UPI payments up to ₹2,000 remain at zero MDR under the announced framework. Separate gateway services or taxes may still apply under the merchant’s agreement.
Does MDR apply to payments between individuals?
No. Person-to-person transfers remain free regardless of the amount, subject to applicable bank and UPI transaction limits.
Does UPI MDR apply to kirana stores and street vendors?
Qualifying P2PM merchants receiving up to ₹1 lakh per month through UPI QR payments remain exempt. The bank or acquirer determines the merchant’s classification.
What happens when a P2PM merchant exceeds ₹1 lakh per month?
NPCI said a merchant receiving more than ₹1 lakh per month for three consecutive months can be moved to the standard P2M category, after which applicable P2M pricing can apply.
Which transactions receive the flat ₹5 rate?
Reported categories include railways, fuel, agricultural inputs, credit-card dues, telecom and utility bills, insurance premiums and tax payments. The assigned merchant category and acquiring setup determine eligibility.
Is UPI AutoPay subject to the new MDR?
Qualifying recurring standing instructions, including covered SIPs, utilities and OTT subscriptions, are exempt from the newly prescribed MDR. Provider fees for mandates or subscription services can still apply.
Does the 0.4% rate apply to RuPay credit cards on UPI?
Not as a standard bank-account-funded UPI transaction. RuPay credit-card and credit-line payments follow the rules and commercial pricing applicable to the underlying credit product.
Can merchants add a separate UPI surcharge?
The government has advised banks to ensure that merchants do not pass the MDR to customers, and UPI apps cannot levy platform fees or hidden charges on users under the framework. Merchants should not add a separate line item presented as a consumer UPI charge.
Is UPI MDR the same as a payment-gateway fee?
No. UPI MDR is the announced network-level merchant charge for eligible transactions. A payment gateway can have separate platform, product and value-added service fees under its commercial agreement.
How often can the MDR framework change?
NPCI said the charges would be reviewed periodically, reported as every six months to one year. Businesses should verify the latest official circulars and provider terms rather than treating the initial rates as permanent.
