UPI charges from October 15: FAQs on who will pay 0.4% MDR and what consumers, small vendors & large merchants need to know

The new UPI framework will continue to keep person-to-person (P2P) transactions free, irrespective of the amount transferred. Payments made to merchants up to Rs 2,000 will also remain free, while a new Merchant Discount Rate (MDR) will apply to specified person-to-merchant (P2M) transactions above Rs 2,000.

According to the FAQ released on September 15, around 96% of P2M transactions will remain unaffected by the new framework. The revised MDR provisions will come into effect from October 15, 2026.

Read more - UPI to introduce fees on transactions above Rs 2,000 from October 15


MDR is not a tax or a charge collected by the government or NPCI. It is distributed among participants in the payment ecosystem, including banks and payment application providers, to support the operation and expansion of UPI.

Here are the frequently asked questions explaining the new UPI MDR framework.

Section 1: Policy objectives

Q1. Why is this Merchant Discount Rate (MDR) being introduced now?

Answer: UPI processes billions of transactions every month. The MDR will be distributed within the UPI ecosystem to support investments in infrastructure resilience, innovation, cybersecurity and customer service.

The FAQ states that UPI charges remain significantly lower than those associated with other payment instruments such as credit cards, debit cards and wallets. The charges will apply only to transactions above Rs 2,000, with the aim of keeping UPI an affordable payment acceptance option.

Q2. Will small-value UPI transactions be impacted?

Answer: No. UPI transactions up to Rs 2,000 will not be impacted. These transactions account for more than 95% of the total volume of UPI P2M transactions, according to the FAQ.

The framework aims to keep everyday digital payments accessible while supporting the long-term sustainability of the UPI ecosystem.

Q3. What MDR is being introduced for merchants on UPI transactions?

Answer: An MDR of 0.4% will apply to P2M UPI transactions above Rs 2,000. For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction.

Q4. How does UPI MDR compare to traditional debit and credit card MDRs?

Answer: The FAQ states that UPI MDR is lower than traditional card-based transaction fees. Standard credit card MDRs typically range from 1.5% to 2.5% per transaction, while debit card MDRs can be capped at up to 0.90%.

The baseline UPI MDR will be 0.4% for transactions above Rs 2,000, with a maximum cap of Rs 300 for transactions of Rs 75,000 and above.

Q5. When do the updated MDR provisions take effect?

Answer: The finalised MDR framework and threshold structure will take effect from October 15, 2026. The timeline is intended to give acquiring banks, payment aggregators, fintech applications and corporate accounting platforms time to update their software and billing systems.

Q6. How does this compare with international payment systems?

Answer: According to the FAQ, most global payment systems, including digital public infrastructures, have economic models to support infrastructure and innovation. India's approach continues to prioritise accessibility, scale and inclusion.

Q7. Who decides the ultimate implementation and enforcement of MDR caps?

Answer: The operational parameters, fee distribution models and category caps will be decided by the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI).

Q8. What is the dedicated fund for small merchants that is being proposed out of MDR?

Answer: A dedicated fund will be established to subsidise and accelerate digital payment infrastructure in Tier 3 to Tier 6 centres, including the northeastern states, Jammu and Kashmir and Ladakh.

In Tier 1 and Tier 2 centres, notified Central Government schemes, such as PM SVANidhi and PM Vishwakarma, may also be included. The fund will also provide financial assistance to ecosystem players for merchant onboarding and encourage the growth of UPI transactions among existing small merchants.

Q9. How does the proposed dedicated fund help small merchants?

Answer: The proposed fund will support the expansion of UPI acceptance among small merchants by providing financial assistance to acquiring banks and payment aggregators for merchant onboarding and incentives for UPI transactions originating from small merchants.

The focus will particularly be on rural areas and Tier 3 centres and beyond. The detailed framework will be finalised in consultation with the Reserve Bank of India (RBI) within the next three months.

Q10. Why is reliance on government subsidies alone no longer sufficient for UPI?

Answer: The FAQ states that annual government incentives or subsidies were designed to support early digital adoption and were intended as short-term bridge funding rather than a permanent mechanism to compensate the payment industry's costs.

According to industry estimates cited in the FAQ, maintaining UPI operations, including server bandwidth, fraud prevention systems and bank technical support, costs around Rs 20,000 crore annually. A commercial, threshold-based model is intended to provide more reliable funding for continued technological investment.

Q11. How will this move drive market competition among payment app operators?

Answer: The framework is intended to create a sustainable commercial model that could encourage new fintech startups and technology companies to enter the digital payments space.

The FAQ states that a predictable revenue model could help smaller and innovative startups compete with larger technology companies, potentially leading to improved services, app reliability and consumer choice.

Q12. How does this policy ensure cybersecurity resilience against emerging threats?

Answer: Revenue generated through MDR can support investments in cybersecurity infrastructure, AI-driven fraud detection and encryption upgrades, according to the FAQ.

Q13. How far has UPI expanded internationally as of 2026?

Answer: According to the FAQ, UPI's international footprint has expanded significantly, with live payment services active across 11 foreign countries as of 2026.

The document states that building a secure and financially sustainable domestic foundation will strengthen India's position in digital financial infrastructure.

Q14. What is the current UPI transaction volume and value scale and why does it need to be self-sustainable?

Answer: UPI processed 2,451 crore transactions worth Rs 29.9 lakh crore in August 2026 alone, according to the FAQ.

The document states that handling this scale requires significant server infrastructure, telecommunications capacity, cybersecurity monitoring and specialised banking software. It argues that a self-sustaining funding framework is needed to support system stability.

Section 2: General consumer

Q15. Will ordinary consumers be charged for making payments via UPI?

Answer: No. Consumers will continue to use UPI without transaction charges. Individual users can continue using UPI applications for routine payments without worrying about MDR being charged to them.

The MDR framework applies to specified merchant-side transactions and does not introduce a transaction fee for consumers.

Q16. Is there any charge for UPI's Person-to-Person (P2P) transactions like sending money to friends, family, or personal contacts?

Answer: No. P2P transactions will remain free for both the payer and beneficiary.

Users can transfer money to family members, split bills with friends or make self-transfers between their own linked bank accounts without transaction charges. P2P UPI transactions will remain free irrespective of the amount transferred.

Q17. Will UPI Apps start charging platform fee on UPI payments?

Answer: No. According to the FAQ, UPI app providers will not charge a platform fee or any other charge for payments made through UPI.

Q18. Will consumer prices rise at stores if merchants start paying a nominal fee?

Answer: No. The framework does not permit merchants to pass MDR charges on to consumers. The FAQ states that merchants generally absorb nominal digital payment processing costs as part of their operating expenses.

The proposed UPI MDR is also lower than typical credit card fees and applies only above specified transaction thresholds.

Q19. Will I need to pay a fee when scanning a QR code at a local vendor?

Answer: No. Consumers will not be charged for scanning a UPI QR code at local markets, street vendors or small retail shops.

The customer-facing side of the QR payment will remain free, and the proposed MDR will not be deducted from the consumer's payment.

Q20. Are there any monthly volume caps on free UPI transactions for consumers?

Answer: No. There will be no monthly quota, volume limit or tiered commercial fee cap for individual consumers using UPI.

Users can make valid P2P and P2M payments as required without incurring transaction fees. Standard daily transaction limits imposed by banks or NPCI for security and risk management are separate from commercial charges.

Q21. Where can ordinary users verify official updates regarding UPI charges?

Answer: Users should refer to official updates from the Ministry of Finance, the Reserve Bank of India and the National Payments Corporation of India.

The FAQ also advises citizens not to rely on unverified social media messages or reports about UPI charges. Official releases from the Press Information Bureau (PIB), RBI and NPCI should be used to verify regulatory updates.

Q22. Does the introduction of MDR affect auto-debit recurring payments like utility bills or OTT / Mutual Fund subscriptions?

Answer: No. According to the FAQ, automated recurring payments set up through UPI Mandates or AutoPay do not carry prescribed MDR transaction charges.

This includes recurring payments such as utility bills, OTT subscriptions and recurring investments.

Section 3: Micro merchants (P2PM) and small merchants

Q23. Will small local vendors (P2PM) be charged MDR on UPI payments?

Answer: No. Small merchants operating under the P2PM framework will continue to have zero MDR.

The FAQ defines these as small vendors receiving up to Rs 1 lakh per month through UPI QR directly into their accounts. The P2PM category is intended to support digital payment acceptance among small merchants and businesses in the unorganised retail sector.

Q24. What is the P2PM framework and how does it protect small merchants?

Answer: The Person-to-Person-Merchant (P2PM) framework is a specialised account category created by NPCI to support small vendors receiving payments directly into their personal bank accounts.

Under the framework described in the FAQ, small merchants receiving up to Rs 1 lakh per month through UPI QR codes are eligible for mandatory zero MDR. The classification is intended to support micro-businesses and encourage digital payment adoption in the unorganised sector.

Q25. Do small merchants need to upgrade or change their existing QR codes?

Answer: No. Existing UPI QR infrastructure will continue to function normally. Merchants will not need to replace, re-register or alter their existing physical QR stands or soundboxes.

Q26. What happens if a small merchant receives a payment above Rs 2,000?

Answer: MDR applicability is determined by the merchant's account categorisation. Receiving an individual payment above Rs 2,000 does not automatically impose MDR on a small merchant operating under an exempted category such as P2PM.

For eligible P2M transactions, however, an MDR of 0.4% will apply above Rs 2,000, with a cap of Rs 300 for transactions of Rs 75,000 and above.

Q27. When will the detailed framework for the dedicated small merchant fund be finalised?

Answer: The detailed operational framework will be finalised in consultation with the Reserve Bank of India within the next three months.

The exercise will determine capital allocation criteria, regional priorities and merchant incentive structures.

Q28. Is a small merchant required to register for GST to benefit from zero MDR?

Answer: No. GST registration is not required for a small merchant to qualify for zero-MDR protection under the P2PM framework, according to the FAQ.

Eligibility is based on applicable monthly collection thresholds and bank account categorisation rather than GST registration status.

Q29. How will acquiring banks identify small merchants (P2PM) eligible for zero MDR?

Answer: Acquiring banks and payment service providers will monitor transaction activity for merchants classified under P2PM to check the inward transaction threshold of Rs 1 lakh per month.

According to the FAQ, merchants receiving more than Rs 1 lakh in UPI payments for three consecutive months will be transitioned to the P2M category.

Q30. Does zero MDR apply to QR code payments accepted in rural areas?

Answer: Yes. Zero MDR will apply to QR code payments accepted by eligible P2PM merchants in rural and semi-urban locations.

The framework also proposes additional support for digital payment expansion in rural areas through the dedicated payment promotion fund.

Section 4: Large merchants and e-commerce platforms

Q31. What MDR is applicable for large commercial transactions?

Answer: A 0.4% MDR will apply to P2M UPI transactions above Rs 2,000. For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction.

Transactions below Rs 2,000 will remain free, including for established commercial entities.

Q32. Is there a maximum fee cap on very high-value UPI payments?

Answer: Yes. The maximum MDR will be capped at Rs 300 per transaction for payments of Rs 75,000 and above.

For example, a Rs 1 lakh transaction would attract Rs 300 rather than the Rs 400 that would result from applying 0.4%.

Q33. Which specific categories qualify for a flat MDR instead of a percentage rate?

Answer: Specific merchant categories, including railways, telecom services, insurance and fuel, among others, will have a flat MDR of Rs 5 per transaction for payments above Rs 2,000.

Instead of the standard 0.4% rate, these specified sectors will follow the flat-fee structure.

Q34. Can enterprise merchants pass the MDR to buyers?

Answer: No. Merchants onboarded under the framework cannot pass the MDR charge on to customers while accepting UPI payments.

Consumers will continue to pay the listed price for goods and services.

Q35. How is MDR calculated on exact transactions (e.g., Rs 5,000 vs Rs 1,00,000)?

Answer: MDR is calculated according to the transaction value and applicable thresholds.

For a Rs 3,000 purchase, 0.4% MDR would amount to Rs 12. For a Rs 50,000 transaction, it would be Rs 200. For a Rs 1 lakh transaction, 0.4% would amount to Rs 400, but the Rs 300 cap would apply because the transaction is above Rs 75,000.

Amount paid to merchant	Applicable MDR	MDR paid by merchant
Rs 2,000	0%	Rs 0
Rs 3,000	0.40%	Rs 12
Rs 50,000	0.40%	Rs 200
Rs 75,000 and above	Fixed Rs 300	Rs 300

Q36. Does MDR apply to transactions made via Credit Cards linked on UPI or Credit Lines?

Answer: Credit-linked UPI payments, including RuPay credit cards linked to UPI and pre-sanctioned bank credit lines, operate under separate credit-product rules.

The MDR discussed in this framework applies specifically to direct account-to-account P2M UPI transactions.

Section 5: Capital market transactions: Mutual Funds, Securities, Brokers and Dealers

Q37. What specific MDR rates and caps apply to Capital Market transactions via UPI?

Answer: The MDR for capital market transactions, including payments towards mutual funds, securities, stockbrokers and dealers, will be 0.02% of the transaction value, subject to a maximum cap of Rs 300.

Q38. Which entities and transaction types are covered under this Capital Market MDR framework?

Answer: The capital market MDR category covers regulated entities such as asset management companies, mutual funds, SEBI-registered stockbrokers, securities dealers and investment platforms.

It applies to UPI transfers for activities including equity purchases, debt market investments, mutual fund purchases and broker wallet top-ups.

Section 6: Specialised sectors: Industry programme merchants

Q39. Are insurance premium payments eligible for special MDR concessions?

Answer: Yes. Insurance premium payments above Rs 2,000 made through UPI will attract a flat MDR of Rs 5 per transaction instead of the standard percentage-based rate.

Insurance payments up to Rs 2,000 will remain at zero MDR.

Q40. How does MDR work for fuel purchases at petrol pumps via UPI?

Answer: Fuel purchases above Rs 2,000 made through UPI at petrol pumps will attract a flat MDR of Rs 5 per transaction.

Fuel payments below Rs 2,000 will have zero MDR under the framework.

Q41. Will government utility bill collections (electricity, water) incur percentage MDR?

Answer: No. Public utility payments such as electricity and municipal water charges will follow a flat concessional MDR of Rs 5 for transactions above Rs 2,000, rather than the 0.4% percentage-based rate.

Utility payments below Rs 2,000 will carry zero MDR.

Q42. Are educational institutions exempt from standard MDR percentage fees?

Answer: Educational fee collections, including school tuition, university fees and institutional entrance examinations, fall under the designated Industry Programme category.

Transactions above Rs 2,000 will benefit from applicable flat-fee structures or capped processing rates, while transactions up to Rs 2,000 will remain free of MDR.