If you accept UPI payments, you've probably heard it already, whether from a customer at the counter, your accountant, or a forward in a WhatsApp group: UPI charges are coming back.
They are, but only for some payments and only for merchants. From 15 October 2026, merchants will pay a 0.4% merchant discount rate (MDR) on eligible UPI payments above ₹2,000, capped at ₹300. Customers still pay nothing.
That's far narrower than the early rumours, which had a fee on every UPI payment. Still, "UPI is free" is no longer the whole story for many businesses. This guide covers what's changing, who pays, who's exempt, and what it could cost you, with worked examples and a checklist at the end.
At a glance
- Customers pay nothing for UPI payments or transfers.
- Merchant payments up to ₹2,000 stay free.
- Above ₹2,000, eligible merchant payments carry 0.4% MDR, capped at ₹300.
- Small merchants receiving up to ₹1 lakh a month through UPI QR pay zero MDR.
- The new rules take effect on 15 October 2026.
In this article
- Is UPI free? The short answer on UPI charges
- What is merchant discount rate (MDR)?
- How zero MDR on UPI came to an end
- UPI MDR charges from 15 October 2026
- Who pays nothing, and who pays less
- UPI MDR vs card MDR
- What the new UPI MDR means for your business
- What to do: merchant checklist
- Frequently asked questions
Is UPI free? The short answer on UPI charges
It depends on who is paying, and how much.
- For customers, UPI stays free. Sending money to family, friends, or your own accounts costs nothing, whatever the amount. So does scanning a QR code at a shop, and UPI apps can't add a platform fee.
- For merchants, payments up to ₹2,000 stay free. That covers more than 95% of UPI merchant payments by volume.
- For merchants, payments above ₹2,000 carry 0.4% MDR. This applies to eligible person-to-merchant (P2M) payments made from a bank account and is capped at ₹300 per payment.
- Small merchants pay zero MDR. If you receive up to ₹1 lakh a month through UPI QR codes under the small merchant (P2PM) category, you pay nothing.
What is merchant discount rate (MDR)?
MDR is the fee a merchant pays to accept a digital payment. You don't pay it separately; it's deducted from your settlement. So, if a customer pays you ₹5,000 and the MDR is ₹20, ₹4,980 lands in your account.
It isn't a government tax. According to the Ministry of Finance, the fee is shared among the banks and apps that process the payment, and goes towards infrastructure, cybersecurity, and customer service.
Two numbers are worth separating. The headline rate, 0.4%, is the figure in the notice. Your effective rate is what you actually pay across all your sales once exemptions and the cap apply. If most of your tickets are small, it will sit well below 0.4%.
MDR is also only the regulated part of your cost. Your payment provider may charge its own fees on top, so check your rate card for both.
How zero MDR on UPI came to an end
For nearly seven years, UPI merchant payments carried no MDR at all. Here's the timeline of how that changed.
| When | What happened |
|---|---|
| January 2020 | MDR removed on UPI and RuPay debit card payments, under a gazette notification dated 30 December 2019. |
| 2021-22 onwards | A government incentive scheme begins compensating banks and apps for low-value UPI merchant payments. |
| June 2025 | The Finance Ministry calls reports of MDR on UPI baseless. |
| August 2026 | Parliament amends the Payment and Settlement Systems Act, 2007. A new Section 10A lets the Centre list payment modes that must stay charge-free. |
| 14 September 2026 | Notification S.O. 5067(E) bars charges on RuPay debit card payments and on UPI payments up to ₹2,000. |
| 15 September 2026 | The NPCI-led UPI and Services Steering Committee sets the 0.4% framework, effective 15 October 2026. |
So why the change? Running UPI isn't cheap. The Ministry of Finance cites industry estimates of about ₹20,000 crore a year, and it has always described the incentive scheme as a short-term bridge rather than a permanent fix. Zero MDR did a great job of getting the country onto UPI, but it was never designed to cover the running costs on its own.
UPI MDR charges from 15 October 2026
For standard merchants, the rule is simple. Payments of ₹2,000 or less are free. Above that, you pay 0.4% of the payment value until the fee reaches ₹300, which happens at ₹75,000. Beyond that, it stays at ₹300, however large the payment.
| Payment amount | MDR Rate | MDR you pay |
|---|---|---|
| ₹2,000 or less | Nil | ₹0 |
| ₹3,000 | 0.4% | ₹12 |
| ₹10,000 | 0.4% | ₹40 |
| ₹50,000 | 0.4% | ₹200 |
| ₹75,000 | 0.4% (cap reached) | ₹300 |
| ₹1,00,000 | Capped | ₹300, not ₹400 |
| ₹3,00,000 | Capped | ₹300 (0.1% effective) |
The cap works in your favour as tickets grow. At ₹75,000, you pay exactly 0.4%. On a ₹3 lakh payment, the same ₹300 works out to just 0.1%.
GST at 18% applies to the MDR, not to the payment itself. On a ₹3,000 payment, that's ₹2.16 of GST on ₹12 of MDR. If you're GST-registered, you can usually claim input tax credit on it but confirm the treatment with your tax adviser.
Who pays nothing, and who pays less
Not every merchant pays the standard 0.4%. If you fall into one of these groups, your costs could be lower, or nothing at all.
- Small merchants (P2PM): zero MDR on UPI QR receipts up to ₹1 lakh a month. You do not need GST registration to qualify. If your inward credits cross ₹1 lakh for three months in a row, you will move to the standard merchant category.
- Flat ₹5 categories: railways, telecom, insurance, fuel, public utilities, and other notified categories pay a flat ₹5 per payment above ₹2,000 instead of 0.4%.
- Education: fees up to ₹2,000 carry no MDR, and fees above ₹2,000 get a flat or capped rate. If you run fee collections for education, ask your acquirer which applies to you.
- Capital markets: mutual funds, securities, and broker payments are charged at 0.02%, capped at ₹300.
- Recurring mandates: UPI AutoPay and similar mandates have no prescribed MDR.
- Credit on UPI: RuPay credit cards and credit lines linked to UPI sit outside this framework and follow credit card pricing.
If you bill customers on a recurring basis, our comparison of UPI AutoPay vs eNACH explains how each works for collections, and our guide to RBI’s e-mandate rules covers how to stop those payments from failing.
UPI MDR vs card MDR
Even with the new MDR, UPI remains one of the cheapest ways to get paid digitally, a point the Ministry of Finance makes too.
| Payment mode | What the merchant pays |
|---|---|
| UPI (bank account), ₹2,000 or less | Nil |
| UPI (bank account), above ₹2,000 | 0.4%, capped at ₹300 |
| RuPay debit card | Nil |
| Other debit cards | Up to 0.90% |
| Credit card | Typically, 1.5% to 2.5% |
| RuPay credit card or credit line on UPI | Credit card pricing, not the 0.4% framework |
If you are deciding which payment options to promote at the checkout, our explainer on payment links, QR codes and payment gateways shows where each one fits best.
By the numbers
More than 95% of UPI merchant payments are ₹2,000 or below and stay free. In August 2026 alone, UPI processed 2,451 crore transactions worth ₹29.9 lakh crore.
Source: Ministry of Finance (Department of Financial Services), FAQs on MDR on select UPI (P2M) transactions, 15 September 2026.
What the new UPI MDR means for your business
How much this affects you depends on your ticket size, not your turnover. A busy shop taking ₹5 lakh a month in small payments might pay nothing, while a smaller business selling pricier items will see a charge every month. The four examples below show how that plays out.
| Business | Typical ticket | Monthly UPI sales | MDR a month | Effective rate |
|---|---|---|---|---|
| Neighbourhood store | ₹250 | ₹5,00,000 | ₹0 | 0% |
| D2C apparel brand | ₹3,500 | ₹10,00,000 | ₹4,000 | 0.4% |
| Electronics retailer | ₹40,000 | ₹20,00,000 | ₹8,000 | 0.4% |
| Jewellery or furniture seller | ₹1,50,000 | ₹30,00,000 | ₹6,000 | 0.2% |
Illustrative figures before GST. They assume every payment is made at the typical ticket size, through standard bank-account UPI, to a regular merchant account. Your actual rate depends on your category and acquirer.
Three things stand out.
- Thin-margin, high-ticket sellers feel it most. A 0.4% cost on a product with a 2% margin takes up a fifth of that sale's profit. Electronics, appliances, and large-basket retail are the most exposed.
- The cap protects very high tickets. Businesses handling high-value jewellery payments, furniture or vehicles will see their effective rate fall below 0.4% because of the ₹300 ceiling.
- The cost stays with you. The framework does not allow merchants to pass MDR on to customers, so price changes, not surcharges, are the lever. Splitting a bill into smaller payments to stay under ₹2,000 is also not a safe workaround. Speak to your acquirer before changing how you collect.
What to do: a merchant checklist
With the deadline days away, work through these eight steps in order.
- Confirm your category. Ask your acquirer whether you sit in the small merchant (P2PM) category or the standard merchant category.
- Check for a flat ₹5 category. If you sell fuel, insurance, telecom, or utilities, you may pay far less than 0.4%.
- Pull your ticket-size data. Look at the last three months and find out what share of your UPI sales sits above ₹2,000. That share, not your turnover, drives your cost.
- Update reconciliation. Expect a new deduction on eligible payments. Ask whether your settlement file will show MDR as a separate line, so your reconciliation and settlement process can match it automatically.
- Separate credit-linked UPI. Credit card and credit line payments on UPI are priced differently from bank-account UPI, so track them separately.
- Sort out GST. Collect invoices for the MDR and ask your tax adviser about input tax credit.
- Leave customer prices alone at checkout. The framework does not allow a UPI surcharge, so update your billing staff and POS settings accordingly.
- Re-run your margins. Pay particular attention to high-ticket, thin-margin products, especially if you are heading into peak sales. Our festive season payment readiness checklist covers the rest of your payment set-up.
Want a second opinion on your numbers? airpay is an RBI-authorised payment aggregator, and the only one in India holding all three RBI PA licences, trusted by 3.32 lakh+ merchants. Our team can walk you through UPI pricing for your ticket sizes and show how airpay Unified Payments handles UPI collections across channels. Talk to our team →
Frequently asked questions
Is UPI free for merchants?
Partly. Payments up to ₹2,000 are free for every merchant, and small merchants receiving up to ₹1 lakh a month through UPI QR codes pay zero MDR. From 15 October 2026, standard merchants pay 0.4% on eligible payments above ₹2,000, capped at ₹300.
Are there any charges for UPI transactions when I pay a shop or send money?
No. Customers pay nothing to send money, pay at a shop or scan a QR code. UPI apps cannot add platform fees, and the payer faces no bank charges on UPI payments under this framework.
What is the UPI charge per transaction for merchants?
There is no charge on payments up to ₹2,000. Above that, the charge is 0.4% of the payment value, so ₹12 on ₹3,000 and ₹200 on ₹50,000. From ₹75,000 upwards, it stays at ₹300. Flat ₹5 and 0.02% rates apply to specific categories.
What is the full form of MDR?
MDR stands for merchant discount rate. It is the fee a merchant pays to accept a digital payment, deducted from the settlement amount.
Who pays MDR on UPI transactions?
The merchant pays, not the customer. The fee is deducted from the settlement and shared among the banks and apps in the UPI ecosystem. Merchants cannot recover it by adding a charge to the customer’s bill.
Are there UPI transfer charges for sending money to a bank account?
No. Person-to-person transfers, including transfers to your own bank accounts, stay free for the sender and the receiver. The new MDR applies only to eligible person-to-merchant payments.
Does MDR apply to credit card payments on UPI?
Not under this framework. UPI credit card MDR follows credit card pricing, which depends on your merchant category. Ask your acquirer for the schedule that applies to you.
