New UPI Rules 2026 Explained: What Does the 0.4% Charge Mean for Customers?
UPI Payment Rules From 15 October 2026: What You Need to Know
From 15 October 2026, the UPI payment framework is set to undergo an important change. Under the new arrangement, certain Person-to-Merchant (P2M) UPI transactions may attract a Merchant Discount Rate (MDR).
However, this should not be misunderstood as a 0.4% fee that every customer must pay when making a UPI payment above ₹2,000.
The proposed framework primarily concerns the MDR applicable on the merchant side. Person-to-Person (P2P) transactions will continue to remain free, while eligible small merchants will be covered by the applicable MDR exemption.
Let us understand the changes in simple terms.
What Will Change in UPI From 15 October 2026?
Under the new framework, eligible P2M UPI payments exceeding ₹2,000 will have a standard MDR of 0.40%, subject to the applicable rules and exemptions.
A maximum MDR limit of ₹300 per transaction will apply.
This means that once an eligible transaction reaches ₹75,000 or more, the MDR will be restricted to the maximum cap of ₹300 instead of continuing to increase at 0.40%.
Illustrative Examples
| UPI Payment | Standard MDR | Merchant-Side MDR |
|---|---|---|
| ₹2,000 | 0% | ₹0 |
| ₹3,000 | 0.40% | ₹12 |
| ₹5,000 | 0.40% | ₹20 |
| ₹10,000 | 0.40% | ₹40 |
| ₹50,000 | 0.40% | ₹200 |
| ₹75,000 | 0.40%, subject to cap | ₹300 |
| ₹1,00,000 | 0.40%, subject to cap | ₹300 |
Important: The above MDR amounts relate to the merchant/payment ecosystem. They should not be treated as an additional UPI transaction fee that customers have to pay separately.
Will Customers Be Charged 0.4% on UPI Payments?
No.
This is the key point to understand.
MDR is a charge associated with the merchant side of the payment ecosystem. Under the stated framework, customers are not separately required to pay MDR as a UPI transaction charge, and the payment ecosystem is expected to prevent merchants from transferring this charge directly to customers.
For instance, if you purchase goods worth ₹10,000 from a shop and pay through UPI, it does not mean that you will have to pay:
₹10,000 + ₹40 as a UPI charge
Where applicable, the ₹40 represents the MDR within the merchant/payment ecosystem rather than an additional amount to be collected from the customer.
Understanding the Difference Between P2P and P2M UPI Payments
UPI transactions can broadly be divided into two categories: P2P and P2M.
1. P2P – Person to Person
A P2P transaction occurs when one individual sends money to another individual through UPI.
Examples include:
- Sending ₹5,000 to a friend
- Transferring ₹20,000 to a family member
- Sending ₹80,000 to another individual
Such P2P transfers will remain free under the new MDR framework.
2. P2M – Person to Merchant
A P2M transaction takes place when an individual makes a UPI payment to a business or merchant.
Examples include:
- Grocery stores
- Restaurants
- Retail outlets
- Online merchants
- Other eligible businesses
For eligible P2M transactions above ₹2,000, a standard 0.40% MDR may apply, subject to the relevant exemptions, conditions and maximum cap.
Therefore, the introduction of merchant-side MDR should not be confused with a 0.4% UPI fee payable by every customer.
Examples of P2M Merchants
Common examples include:
- Grocery stores
- Restaurants
- Retail businesses
- Online sellers
- Other eligible merchants and service providers
For eligible P2M transactions above ₹2,000, a standard 0.40% MDR may apply, subject to the relevant exemptions, conditions and applicable transaction caps.
What Happens to UPI Merchant Payments Up to ₹2,000?
Eligible merchant transactions of up to ₹2,000 will continue to have 0% MDR.
For example:
₹1,000 payment → ₹0 MDR
₹2,000 payment → ₹0 MDR
However, once the payment exceeds ₹2,000, it is necessary to consider the type of transaction and the merchant’s applicable classification before determining whether MDR applies.
Therefore, it would be incorrect to interpret the headline:
“0.4% charge on UPI payments above ₹2,000”
as meaning that every UPI transaction above ₹2,000 will automatically attract a 0.4% charge.
Small Merchants May Get Significant Relief
The proposed framework also provides an important exemption for eligible small merchants under the relevant P2PM (Person-to-Person Merchant) category.
Eligible small merchants receiving up to ₹1 lakh per month through UPI QR payments directly into their bank account can qualify for an MDR exemption.
This may benefit businesses such as:
- Small shopkeepers
- Street vendors
- Local sellers
- Small service providers
Example
Suppose a small shopkeeper receives ₹80,000 through UPI QR payments during a month.
If one customer makes a payment of ₹3,000, the merchant will not automatically fall into the standard 0.4% MDR category simply because that individual transaction exceeds ₹2,000.
The merchant’s overall classification and the applicable framework would need to be considered.
Why Is the ₹1 Lakh Monthly UPI Receipt Limit Important?
For determining eligibility for the small-merchant exemption, the merchant’s total monthly UPI QR receipts can be important, rather than looking only at the value of an individual transaction.
Small businesses should therefore keep track of their UPI collections regularly.
If a merchant repeatedly exceeds the prescribed threshold, its classification may change and the standard MDR framework could become applicable. Based on the reported framework, merchants whose UPI receipts remain above ₹1 lakh for three consecutive months may be moved into the P2M category.
For small businesses, this makes the following increasingly important:
UPI Collection Monitoring + Regular Bank Reconciliation
Keeping accurate records can help merchants understand their transaction position and applicable UPI classification.
Maximum MDR of ₹300 on Payments Above ₹75,000
One of the important features of the new framework is the maximum MDR limit of ₹300 per transaction.
The standard MDR rate is:
0.40%
However, the maximum amount that can apply is:
₹300 per transaction
For example:
₹50,000 Payment
₹50,000 × 0.40% = ₹200 MDR
₹75,000 Payment
₹75,000 × 0.40% = ₹300 MDR
₹1,00,000 Payment
₹1,00,000 × 0.40% = ₹400
However, because of the applicable cap, the MDR will be restricted to:
₹300
Some Sectors May Have a Concessional ₹5 MDR
The standard 0.40% rate will not necessarily apply to every merchant category.
Certain specified sectors may receive concessional MDR treatment.
Reported categories include areas such as:
- Railways
- Fuel
- Telecom
- Insurance
- Electricity and utility payments
- Certain public-service transactions
For eligible transactions in these categories, a flat MDR of ₹5 may apply.
Example
Suppose an eligible fuel transaction is:
₹5,000
Under the standard 0.40% calculation:
₹5,000 × 0.40% = ₹20
However, where the transaction falls under an applicable concessional category, the MDR would instead be:
₹5
This does not mean that the customer has to pay the ₹5 separately as a UPI transaction fee.
What About Electricity, Water and Gas Bill Payments?
Certain designated public-utility payments may also receive concessional MDR treatment.
Examples can include eligible payments for:
- Electricity bills
- Municipal water charges
- Piped natural gas
For qualifying transactions above ₹2,000, a flat ₹5 MDR has been reported for applicable categories.
Therefore, a:
₹10,000 electricity bill
does not automatically mean that a standard 0.40% MDR of ₹40 will apply. The applicable category-specific rate must be considered.
What About School and College Fee Payments?
Educational payments may receive separate treatment under the applicable category.
This can include payments such as:
- School fees
- College fees
- University fees
- Certain examination-related payments
Eligible payments of up to ₹2,000 may remain MDR-free, while transactions above ₹2,000 may be subject to the relevant category-specific concessional or capped MDR rate.
UPI Payments for Mutual Funds and Stock Market Transactions
UPI transactions connected with the capital-market ecosystem may have a separate MDR structure.
Specified transactions involving:
- Mutual funds
- Securities
- Stockbrokers
- Dealers
- Investment platforms
have been reported to carry an MDR of 0.02%, subject to a maximum of ₹300 per transaction.
Example
For an eligible capital-market payment of:
₹50,000
the calculation would be:
₹50,000 × 0.02% = ₹10
Therefore, the applicable MDR would be ₹10.
For:
₹1,00,000
the calculation becomes:
₹1,00,000 × 0.02% = ₹20
At ₹15 lakh, the calculated amount reaches ₹300, after which the ₹300 maximum cap would apply.
What About UPI AutoPay and Recurring Transactions?
UPI AutoPay and mandate-based recurring payments are another important area to consider.
Automated payments made through UPI mandates may receive treatment different from the standard MDR framework.
These can include:
- Mutual fund SIPs
- OTT subscriptions
- Utility bills
- Insurance-related recurring payments
- EMIs
- Other recurring mandates
Therefore, it would be inaccurate to state that:
“Every UPI transaction above ₹2,000 will attract 0.4% MDR.”
The nature of the transaction and the payment mechanism also matter.
What About RuPay Credit Card Payments Through UPI?
The new MDR framework should primarily be understood in the context of direct account-to-account P2M UPI payments.
UPI transactions linked to credit products, such as RuPay credit cards or approved credit lines, operate under separate rules applicable to those credit products.
Therefore, a regular bank-account-based UPI payment should not automatically be treated in exactly the same way as a credit-linked UPI transaction.
Will UPI Become Completely Chargeable?
No.
It would be misleading to describe the change simply as:
“UPI will become a paid service from 15 October.”
The proposed change concerns the introduction of an MDR structure for selected merchant-side UPI transactions.
Several categories can continue to receive zero-MDR or concessional treatment, including:
P2P transfers → Free
Eligible merchant payments up to ₹2,000 → 0% MDR
Eligible small P2PM merchants → Zero MDR
UPI AutoPay/mandates → Separate treatment
Certain sectors may also receive concessional MDR rates.
What Does This Mean for Shopkeepers?
Businesses may need to pay closer attention not only to sales accounting but also to the cost associated with digital payments.
In particular, larger merchants may need to:
1. Monitor UPI Collections
Keep track of how much of the business’s total sales are being received through UPI.
2. Verify Merchant Classification
Determine whether the business falls under the P2PM category or the standard P2M category.
3. Reconcile UPI Settlements With Accounts
Actual bank settlements should be matched with sales records and accounting entries.
4. Record Applicable MDR Correctly
Where MDR applies, merchants should appropriately record the charges reflected by their payment ecosystem or banking provider in their accounting records.
5. Avoid Adding a Separate UPI Surcharge to Customers
The applicable framework does not provide for simply passing the merchant-side MDR to customers as a separate “UPI Charge.”
Will Customers Have to Pay ₹12, ₹200 or ₹300 for UPI Payments?
No. These amounts represent examples of merchant-side MDR, not a separate customer UPI fee.
The distinction can be understood as follows:
| Payment Amount | Example of Applicable MDR | Separate UPI Charge to Customer |
|---|---|---|
| ₹2,000 | ₹0 | ₹0 |
| ₹3,000 | ₹12 | ₹0 |
| ₹50,000 | ₹200 | ₹0 |
| ₹75,000 | ₹300 cap | ₹0 |
| ₹1,00,000 | ₹300 cap | ₹0 |
UPI MDR Structure at a Glance
| Transaction Category | New MDR Treatment |
|---|---|
| P2P UPI Transfer | Free |
| Eligible P2M payment up to ₹2,000 | 0% |
| Standard eligible P2M above ₹2,000 | 0.40% |
| Standard P2M transaction of ₹75,000 or more | Maximum ₹300 |
| Eligible small P2PM merchants with up to ₹1 lakh monthly UPI QR receipts | Zero MDR |
| Specified essential/utility categories | Concessional ₹5 treatment, where applicable |
| Eligible capital-market transactions | 0.02%, maximum ₹300 |
| UPI AutoPay / recurring mandates | Separate treatment |
Key Points for UPI Users
For regular customers, the following points are particularly important:
✅ No MDR on eligible merchant UPI payments up to ₹2,000
✅ Person-to-Person UPI transfers remain free
✅ Customers are not separately required to pay a 0.4% UPI fee
✅ Standard eligible merchant transactions of ₹75,000 or more are subject to a ₹300 MDR cap
✅ Eligible small merchants may receive an MDR exemption
✅ Fuel, insurance, telecom, railway and certain utility categories may receive concessional treatment
✅ Eligible capital-market transactions may have a separate 0.02% rate
✅ AutoPay and mandate-based payments have separate treatment
Key Points for Shopkeepers
Businesses accepting payments through UPI QR should understand their merchant classification and payment setup before the proposed changes take effect from 15 October 2026.
Merchants should particularly review:
- Total monthly UPI collections
- Whether they qualify for the P2PM exemption
- The merchant category mapped to their QR
- Transactions that may fall under the standard 0.40% MDR
- Transactions eligible for concessional rates
- How MDR appears in bank or payment-provider settlements
- How UPI charges and settlements should be reconciled in accounting software
Why Is the UPI MDR Framework Being Introduced?
UPI has grown to an extremely large payment network. According to official NPCI statistics, August 2026 recorded around 24.51 billion UPI transactions, with a total transaction value of approximately ₹29.82 lakh crore.
Reports discussing the MDR framework have linked the proposed structure with the need to support the wider UPI infrastructure, cybersecurity, innovation and customer-service ecosystem.
Final Takeaway
The changes proposed from 15 October 2026 should not be interpreted as a blanket charge on every UPI transaction.
The key change is the introduction of an MDR structure for eligible merchant-side UPI payments, with different rates, exemptions and caps depending on the transaction category.
The important figures to remember are:
₹2,000 — threshold
0.40% — standard MDR
₹300 — maximum MDR cap
₹1 lakh/month — small P2PM exemption threshold
₹5 — applicable flat MDR for specified concessional categories
0.02% — eligible capital-market transaction rate
Most importantly:
Customers are not required to pay a separate 0.4% UPI charge simply because their payment exceeds ₹2,000.
Therefore, if you receive a WhatsApp message claiming:
“From 15 October, customers will have to pay 0.4% on every UPI payment above ₹2,000,”
do not forward it without checking the applicable rules and official information.
The proposed changes primarily concern the MDR structure within the merchant and payment ecosystem, rather than making UPI a universally chargeable service for customers.
