For almost six years, accepting a UPI payment in India has been free for merchants. From October 15, 2026, that changes for some payments. Here is the plain version: who pays, how much, and what it means if you shop, sell or run a small business.
What is changing?
The government announced on September 15 that a Merchant Discount Rate (MDR) will apply to eligible UPI payments to merchants above Rs 2,000, starting October 15. MDR is the fee a business pays to accept a digital payment. The standard rate is 0.4% per transaction, capped at Rs 300 (India Today).
Examples from India Today:
- A Rs 3,000 payment to a shop: MDR of Rs 12.
- A Rs 50,000 payment: MDR of Rs 200.
- A Rs 1 lakh payment: 0.4% would be Rs 400, but the charge is capped at Rs 300.
Who pays, and who does not?
- Customers do not pay a new fee. The charge is on the merchant side, and the government has advised banks to ensure merchants do not pass it on to customers.
- Payments of Rs 2,000 or less stay free of the standard MDR. NPCI says the Rs 2,000 limit applies to each transaction, not to a merchant's daily total, so many small payments below Rs 2,000 remain free.
- Person-to-person payments stay free. Sending Rs 5,000 to a friend or family member carries no charge.
- Small merchants are exempt. Merchants receiving up to Rs 1 lakh a month through UPI QR payments keep zero MDR.
- Some categories have different rates. Railways, telecom, insurance, fuel and agricultural inputs pay a flat Rs 5 on payments above Rs 2,000. Mutual funds, securities and stockbrokers pay 0.02%, capped at Rs 300.
- Some recurring payments are excluded, including utility bills, OTT subscriptions, monthly investments and automated recurring payments.
Why is it happening?
The government says UPI costs money to run: technology, cybersecurity, fraud prevention and the infrastructure needed to process a huge number of payments. NPCI has also said a dedicated fund from MDR collections would be used to expand digital payment infrastructure and UPI acceptance among small merchants, particularly in smaller towns and cities.
The scale is large. UPI handled about 24,509 million transactions worth Rs 29.82 lakh crore in August 2026 alone, according to NPCI data cited by Mint.
The debate
The Supreme Court has refused to put the new MDR on hold while it hears a petition challenging it. It has asked the Centre, the RBI and other parties to respond within four weeks. The Retailers Association of India says the cost could pressure small businesses with thin margins, and that some merchants might prefer cash. The Confederation of All India Traders says its members will continue to accept UPI, but wants some relief for small traders.
What young founders and small sellers should do
- Check your monthly UPI volume. If you receive up to Rs 1 lakh a month through UPI QR payments, you stay at zero MDR. If you are close to the line, track it.
- Know your category. Your rate may be the standard 0.4% or a flat rate, depending on what you sell.
- Add the fee to your cost sheet. On a Rs 3,000 sale the fee is Rs 12. It looks small, but on a thin margin and many orders it adds up.
- Do not add a surprise charge for customers. The government has told banks merchants should not pass the fee on, and the Consumer Affairs department is strengthening its helpline to handle complaints.
- Watch the court case. Rules could change after the Supreme Court hears the matter.
The bottom line
If you only pay friends and shop in small amounts, little changes for you. If you sell through UPI and your orders are above Rs 2,000, start planning for a small cost per sale from October 15.
This post is for information and education. It is not legal or financial advice. Rules may change; check official notifications for your own business.
Sources
- India Today, UPI payments above Rs 2000 to be chargeable after Oct 15: What is it, why is it happening, who will be impacted (October 1, 2026)
- Greater Kashmir (NPCI statement), Proposed UPI MDR framework to protect consumers, small merchants: NPCI (October 1, 2026)
- Mint, Consumer dept preps guardrails as UPI fee set to kick in (October 1, 2026)
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