From October 15, 2026, a Merchant Discount Rate of 0.4% applies to select Person-to-Merchant UPI payments above Rs 2,000. Customers do not pay this charge; it is deducted from what the merchant receives, and is capped at Rs 300 per transaction.
Sending money to another person stays free at any amount, and so does paying a merchant up to Rs 2,000. Below: exactly who pays what, which categories are exempt, and how the numbers work out on a real bill.
What Is the New UPI Charge Above Rs 2,000?
It is not a charge on you as a customer. Rs 2,000 is the threshold above which the National Payments Corporation of India applies a Merchant Discount Rate to specified merchant UPI payments, and that fee is paid by the merchant, not deducted from the amount you send.
The change comes from NPCI's Operating Circular 237/2026-27, dated September 15, 2026, and takes effect from October 15, 2026. The Reserve Bank of India has backed the framework.
The Ministry of Finance issued a same-day clarification confirming that ordinary UPI users will not bear any part of this cost.
Why NPCI Introduced MDR on UPI Payments
UPI has run on a zero-MDR regime since January 1, 2020, funded almost entirely by government incentive payments to banks rather than by transaction fees. That volume has since grown to a scale where the incentive model alone strains against the cost of running the network.
NPCI processed 24.51 billion transactions worth roughly Rs 29.82 lakh crore in August 2026 alone, per NPCI's own published data. Running that volume needs continuous investment in server capacity, fraud detection, and customer support.
A targeted MDR on high-value merchant payments is the funding mechanism NPCI chose, instead of raising costs across every transaction type.
UPI MDR Rate Chart: Charges by Transaction Type
The rate that applies depends entirely on who is receiving the money and which merchant category they belong to, not on the amount alone.
| Transaction Type | MDR Rate |
|---|---|
| Person-to-person transfer, any amount | Nil |
| Merchant payment up to Rs 2,000 | Nil |
| Small merchant under P2PM (up to Rs 1 lakh/month) | Nil |
| Eligible merchant payment above Rs 2,000 | 0.4%, capped at Rs 300 |
| Railways, telecom, insurance, fuel, agricultural inputs, credit card dues, tax payments above Rs 2,000 | Flat Rs 5 |
| Capital market transactions (stockbrokers, mutual funds, depositories) | 0.02%, capped at Rs 300 |
| UPI AutoPay and recurring mandates | Nil under this framework |
Sending Money to Friends and Family: Still Free
Person-to-person UPI transfers remain free at any amount. Whether you send Rs 500 to split a dinner bill or Rs 5 lakh to a family member, no MDR applies, and none of this framework touches that transaction type.
The government has stated that P2P transfers account for around 70% of the total value moved through UPI, and that entire category is excluded from the MDR framework by design, not by exemption.
Paying a Shop Above Rs 2,000: What You Actually Pay
The customer pays exactly the sticker price, every time. The MDR is calculated on the merchant's side and comes out of what the merchant receives, not what leaves your account.
| Amount Paid by Customer | MDR Paid by Merchant (0.4%) |
|---|---|
| Rs 2,000 | Rs 0 |
| Rs 3,000 | Rs 12 |
| Rs 10,000 | Rs 40 |
| Rs 50,000 | Rs 200 |
| Rs 75,000 | Rs 300 (cap reached) |
| Rs 1,00,000 | Rs 300 (capped, not Rs 400) |
At exactly Rs 75,000, 0.4% works out to Rs 300, which is also where the cap kicks in. Every eligible payment above that amount still costs the merchant Rs 300 flat, never more.
Are Small Merchants and Street Vendors Exempt?
Yes. Merchants covered under the Person-to-Person-Merchant (P2PM) framework, broadly small vendors and neighbourhood shops receiving UPI QR payments of up to Rs 1 lakh a month, continue to pay zero MDR, even when a single payment from a customer exceeds Rs 2,000.
One high-value payment does not automatically move a merchant into the MDR-liable category. Banks and payment service providers track monthly UPI receipts, and a merchant is reclassified out of P2PM only after crossing Rs 1 lakh a month for three consecutive months.
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Railways, Fuel, Telecom, Insurance and Tax Payments: Flat Rs 5
A specific set of thin-margin, high-frequency sectors pay a flat Rs 5 per transaction above Rs 2,000 instead of the standard 0.4%. This concessional rate covers railways, telecom, insurance, fuel, agricultural inputs, credit card bill payments, and specified tax payments.
UPI Charges for Mutual Funds and Stock Market Payments
Payments to stockbrokers, mutual fund transactions, and depository-linked payments carry a lower MDR of 0.02%, capped at Rs 300 per transaction. This is roughly a twentieth of the standard 0.4% rate.
The lower rate exists specifically to avoid discouraging retail participation in markets. A Rs 50,000 mutual fund SIP top-up through UPI would carry an MDR of Rs 10 under this rate, compared to Rs 200 under the standard rate.
Use the CAGR Calculator to check how a Rs 10 to Rs 300 transaction fee actually compares to the long-run return on the investment itself, before treating it as a meaningful cost.UPI Charges on Credit Cards and RuPay Credit Card Payments
Credit card bill payments made through UPI, for example paying off an HDFC or ICICI credit card statement using a UPI app, carry the flat Rs 5 concessional rate above Rs 2,000, the same treatment as railways and telecom.
This is different from a RuPay credit card linked to UPI and swiped or scanned directly at a merchant to make a purchase. That transaction uses the RuPay network's own interchange and merchant fee structure, which predates this MDR framework and is not covered by it.
Is There a Daily or Monthly Limit on Free UPI Payments?
No. There is no monthly quota, volume cap, or tiered limit on free UPI usage for individuals under this framework. The Rs 2,000 figure is an MDR threshold for merchant payments, not a usage limit of any kind.
Separately, NPCI and member banks enforce daily transaction limits, typically ranging from Rs 1 lakh to Rs 5 lakh depending on the bank and use case, purely for security and fraud control.
Hitting that daily limit means you cannot transact further until it resets. It does not mean you owe a fee.
Monthly Budget Calculator
Track where your UPI spending actually goes each month, separate from any MDR your merchants may be absorbing.
What Changes for Merchants From October 15, 2026
A merchant accepting UPI payments above Rs 2,000, and not covered by the P2PM small-merchant exemption, starts absorbing a 0.4% cost on each such payment from October 15, 2026, capped at Rs 300.
Banks have been explicitly advised not to let merchants pass this on to customers as a separate line-item charge.
A merchant's actual response, adjusting margins, watching monthly UPI receipts to stay under the P2PM threshold, or simply absorbing the cost, is a business decision each merchant has to make on their own numbers.
Run the Cashback Earnings Calculator to see whether a card-based payment channel's rewards still beat UPI once you account for what each side of a transaction actually costs.Who Actually Pays the MDR: Customer or Merchant?
The merchant pays it, in full, every time. Per NPCI's Operating Circular 237/2026-27, the 0.4% is not a single fee kept by one company; it is split across four participants in the payment chain.
| Recipient | Share |
|---|---|
| Acquiring bank | 0.12% |
| Issuing bank | 0.16% |
| UPI app | 0.08% |
| Payment service provider | 0.04% |
| Total | 0.40% |
NPCI Circular and RBI Backing: Official Notifications
NPCI notified the full MDR framework through Operating Circular 237/2026-27 on September 15, 2026, endorsed by the UPI and Services Steering Committee, and it is published at npci.org.in.
The Reserve Bank of India has backed the framework as consistent with its broader digital payments oversight.
The Ministry of Finance issued its own clarification the same day, stating that customers will not be charged MDR and that roughly 96% of merchant UPI transactions remain unaffected because they are either below Rs 2,000 or already covered by the small-merchant exemption.
How to Check If a UPI Payment Will Attract MDR
Four checks, in order, tell you whether a given UPI payment carries any MDR at all, and if so, how much.
- Check who is receiving the money: a person-to-person transfer never carries MDR, at any amount.
- Check the amount: a merchant payment of Rs 2,000 or less never carries MDR either.
- Check the merchant category: a small P2PM merchant pays nil, specified sectors pay a flat Rs 5, capital market payments pay 0.02%, and everything else pays 0.4%, all capped at Rs 300.
- Confirm the customer side is unaffected: whatever the MDR works out to, it comes out of the merchant's payout, never added to what the customer pays.
Income Tax Calculator
UPI receipts feed straight into a business's taxable turnover. Check your income tax liability for FY 2026-27 under both regimes.
Frequently Asked Questions: UPI Charges Above Rs 2,000
CAs and financial advisors can generate detailed Tax Optimization Reports for clients affected by MDR-related business income changes at ca.fermor.in.
Disclaimer: The Merchant Discount Rate framework is set by NPCI and endorsed by RBI, and is subject to change through future circulars. Always verify the current rate applicable to a specific transaction category against the official NPCI circular (npci.org.in) before relying on it for business pricing decisions. Fermor is not a payments advisory firm.