India’s Unified Payments Interface (UPI) is set for a significant change: from October 15, 2026, a Merchant Discount Rate (MDR) of 0.4% will apply to high-value merchant transactions, marking one of the most notable shifts in the platform’s fee structure since it launched.
Update (September 28): The Supreme Court has refused to stay the new UPI MDR but asked the Centre, RBI and NPCI to explain its legal basis. Read the latest: Supreme Court Refuses to Stay UPI MDR.
What Is Changing
Under the new rule, Person-to-Merchant (P2M) UPI transactions exceeding Rs 2,000 will attract an MDR of 0.4%, capped at a maximum of Rs 300 per transaction. For example, a Rs 20,000 payment would draw roughly Rs 80 in fees, while very large transactions are protected from runaway costs by the Rs 300 ceiling.
Who Actually Pays
Officials have been clear that the charge falls on merchants, not consumers. “Consumers will continue to transact free of cost using UPI,” officials said while announcing the change, meaning everyday shoppers using UPI to pay at stores, restaurants or online will see no difference at checkout.
What Stays Free
The vast majority of UPI activity remains untouched by the new rule:
- Person-to-Person (P2P) transfers between individuals remain completely free.
- P2M transactions up to Rs 2,000 are unaffected — a segment that reportedly accounts for more than 95% of total UPI transaction volume.
- Small vendors covered under the P2PM (Person-to-Person-Merchant) framework will continue to pay zero MDR.
- Specified sectors such as railways, telecom, insurance and fuel will instead pay a flat Rs 5 per transaction, regardless of the payment amount.
Why the Change Was Made
Authorities say the new charges are intended to support the next phase of UPI’s expansion, helping onboard new users and merchants while funding continued investment in cybersecurity and platform resilience. Officials also point out that even with the new MDR, UPI transaction costs remain lower than those associated with credit cards and digital wallets, positioning it as still the cheapest digital payment rail for merchants.
What It Means for Businesses
Small and medium merchants who regularly process transactions above Rs 2,000 — retailers, service providers and e-commerce sellers among them — should factor the new cost into their pricing and margins ahead of the October 15 rollout. Larger merchants are likely to feel a smaller proportional impact thanks to the Rs 300 cap. As the deadline approaches, banks and payment aggregators are expected to issue further guidance on how the charge will be reflected in settlement reports.
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