UPI Payment Rules 2026
What Changes From October 15? New ₹2,000 MDR Rules Explained
UPI Payment Rules 2026: From October 15, 2026, a revised Merchant Discount Rate (MDR) framework will apply to certain UPI person-to-merchant (P2M) transactions above ₹2,000. However, one important point for ordinary users is that customers will not be charged MDR. Person-to-person (P2P) UPI transfers will also remain free.
The new framework announced by the National Payments Corporation of India (NPCI) has created confusion because of reports about “UPI charges.” The actual change is primarily related to merchant-side payment processing charges, not a fee that users must pay whenever they use UPI.
What Is Changing From October 15?
Under the new framework, eligible merchant transactions above ₹2,000 will generally attract an MDR of 0.4%. For transactions of ₹75,000 or more, the MDR will be capped at ₹300 per transaction.
For example:
- ₹1,500 UPI payment → No MDR
- ₹2,000 UPI payment → No MDR
- ₹10,000 eligible merchant payment → 0.4% MDR = ₹40
- ₹1,00,000 eligible merchant payment → 0.4% would be ₹400, but the MDR is capped at ₹300
Importantly, these charges are payable within the merchant/payment ecosystem rather than being directly collected from the customer.
Will Customers Have to Pay for UPI?
No, under the announced framework.
The Finance Ministry says UPI will continue to remain completely free for person-to-person transactions, regardless of the amount transferred. Payments to merchants up to ₹2,000 will also remain free of MDR. UPI app providers are not permitted to impose platform fees or hidden charges on customers under this framework.
So, if you send ₹10,000 to a family member or friend through UPI, this new MDR does not mean you will pay 0.4%.
What About Small Shops and Street Vendors?
Small merchants receive special protection under the framework.
Merchants classified under the P2PM category, including eligible small vendors receiving up to ₹1 lakh per month through UPI QR codes, can continue receiving UPI payments without MDR. This means an eligible small vendor can receive a payment above ₹2,000 without automatically becoming liable for the standard 0.4% MDR.
If a small vendor’s UPI receipts exceed ₹1 lakh for three consecutive months, the merchant can transition to the P2M category, according to reporting based on NPCI’s framework.
Special Charges for Certain Sectors
The 0.4% rate does not apply uniformly to every merchant category.
Certain essential and thin-margin sectors can have a flat ₹5 MDR for transactions above ₹2,000. Reported categories include areas such as railways, telecom, insurance, fuel and certain utility payments.
Capital-market-related payments have a separate rate of 0.02%, subject to a maximum MDR of ₹300, according to the Finance Ministry’s explanation.
What Remains Completely Free?
Several common UPI transactions remain outside the new MDR framework:
- P2P transfers: Free regardless of amount
- Merchant payments up to ₹2,000: No MDR
- Eligible small merchants: Zero MDR
- UPI AutoPay: No prescribed MDR
- Customers: No MDR charged directly
- UPI app platform fees for these transactions: Not permitted under the framework
The government says approximately 96% of P2M transactions will remain unaffected, while MDR applies only to specified merchant transactions above ₹2,000.
Why Is NPCI Introducing MDR?
MDR is a payment-processing fee within the digital payments ecosystem. It is distributed among participants involved in processing the transaction rather than being a government tax, according to the Finance Ministry.
The stated objective is to support the sustainability, security and infrastructure of the UPI ecosystem while continuing to protect consumers and eligible small merchants.
UPI Rules 2026: Quick Summary
| UPI Transaction | From Oct. 15, 2026 |
|---|---|
| P2P transfer | Free |
| Merchant payment up to ₹2,000 | No MDR |
| Eligible P2M above ₹2,000 | 0.4% MDR |
| P2M ₹75,000+ | Maximum ₹300 MDR |
| Eligible small P2PM merchants | Zero MDR |
| Certain essential sectors above ₹2,000 | ₹5 flat MDR |
| Capital-market transactions | 0.02%, capped at ₹300 |
| Customer directly paying MDR | No |
Final Takeaway
The biggest misconception about the October 15 UPI change is that every person using UPI will start paying a transaction fee. That is not what the announced framework says. The new MDR primarily applies to specified merchant-side transactions above ₹2,000, while P2P transfers remain free and eligible small merchants continue under zero-MDR provisions.