UPI Payments Stay Free for Users as New MDR Rules Take Effect From October 15

UPI users will continue to pay exactly the amount shown at checkout even after the new Merchant Discount Rate framework takes effect on October 15, 2026. The change introduces a cost for certain merchant transactions, not a new transaction fee for customers. 

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Person-to-person transfers will remain free, as will merchant payments of up to ₹2,000. The government estimates that about 96% of merchant UPI transactions will remain outside the new charge. 

For transactions that do fall under the framework, the standard MDR will be 0.4% on person-to-merchant payments above ₹2,000. Once the transaction value reaches ₹75,000, the charge is capped at ₹300. 

What changes for a ₹5,000, ₹50,000 or ₹1 lakh payment? 

The easiest way to understand the new system is through the size of the transaction. 

If a customer makes an eligible merchant payment of ₹5,000, the 0.4% MDR works out to ₹20. That amount is borne within the merchant-payment system; the customer still pays ₹5,000. 

On a ₹50,000 transaction, the MDR works out to ₹200. 

The calculation changes once the payment crosses the ₹75,000 threshold. At ₹1 lakh, for instance, 0.4% would ordinarily amount to ₹400. The ₹300 ceiling, however, limits the MDR to ₹300. 

The same principle applies to a ₹3,000 purchase, where the merchant-side charge would be ₹12. 

None of these amounts is added to the customer’s bill as a UPI transaction charge. 

Merchants cannot add MDR to the customer’s payment 

The distinction between the merchant’s cost and the customer’s payment is central to the new framework. 

MDR is the fee associated with accepting a digital payment. Under the new rules, merchants cannot pass that fee on to customers. A buyer making an ordinary UPI payment will therefore continue to pay the displayed purchase price. 

Individual account holders can also continue using UPI for routine payments without a transaction fee. 

Person-to-person payments — such as sending money to family members or friends — remain outside the MDR framework. 

Small-value transactions largely remain untouched 

The ₹2,000 threshold means a large majority of merchant transactions will see no change. 

Merchant payments of ₹2,000 or less will continue without MDR. The government estimates that only about 4% of merchant UPI transactions will be affected by the new charge, leaving roughly 96% outside its scope. 

UPI’s scale makes the change significant for the payments industry even though only a relatively small portion of transactions will attract MDR. In August, the network processed 24.51 billion transactions with a combined value of ₹29.9 trillion. 

Part of MDR collections will support small-merchant adoption 

The framework also provides for a dedicated fund aimed at promoting UPI adoption among small merchants. 

Five per cent of total MDR collections will be directed towards this fund. 

For consumers, however, the practical experience of making a regular UPI payment remains unchanged. A ₹5,000 purchase still means paying ₹5,000, while a ₹50,000 purchase means paying ₹50,000. Where MDR applies, it operates within the merchant-payment ecosystem rather than appearing as an additional charge on the customer’s UPI payment. 

The new framework comes into effect on October 15, 2026.