India’s Unified Payments Interface (UPI) is set for its biggest pricing change since the system became a dominant digital-payment platform, with a 0.4% Merchant Discount Rate (MDR) being introduced on specified person-to-merchant transactions above ₹2,000 from October 15, 2026. The new framework ends more than six years of zero-MDR merchant payments, but consumers will continue to use UPI without a direct transaction fee.
The most important clarification is that the new MDR is a charge within the merchant-payment ecosystem. Customers making payments to merchants will not be required to pay the MDR, and person-to-person UPI transfers will remain completely free regardless of the amount transferred.
Under the new framework, regular merchant transactions above ₹2,000 will attract an MDR of 0.4%. The charge will be capped at ₹300 for transactions of ₹75,000 and above. This means a ₹10,000 qualifying merchant payment would generate an MDR of ₹40, while the maximum applicable charge would remain ₹300 even for larger transactions.
Certain essential sectors will follow a different structure. Payments above ₹2,000 involving railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat ₹5 MDR. Small merchants receiving up to ₹1 lakh per month through UPI QR payments under the specified category will also remain exempt.
The government says the new model is intended to create a more sustainable financial foundation for UPI, helping support infrastructure, cybersecurity, innovation and expansion. Around 96% of P2M transactions are expected to remain unaffected, according to the Finance Ministry.
For ordinary UPI users, therefore, the immediate change is limited. Sending money to another person remains free, and merchant payments up to ₹2,000 remain free. The bigger impact will be felt by merchants accepting larger digital payments as the UPI ecosystem moves away from its long-standing zero-MDR model.
The new rules take effect on October 15, 2026, marking a significant change in the economics of India’s digital-payment infrastructure.
