Table of Contents
From 15 October 2026, select high-value UPI merchant payments will carry a fee for the first time since January 2020. Here is exactly what changed, who pays, who is protected, and what is still unsettled — verified against Parliament records, the gazette notification, and official RBI, Finance Ministry and NPCI statements.
0.4%
Standard MDR on P2M UPI payments above ₹2,000
₹2,000
Threshold below which every P2M payment stays free
15 Oct 2026
Date the new framework takes effect
~96%
Share of P2M transactions NPCI says stay unaffected
Unified Payments Interface (UPI) has been free for both consumers and merchants since the government zeroed out the Merchant Discount Rate (MDR) on UPI and RuPay debit card transactions in January 2020. That six-year run of a blanket zero-MDR regime ended on 15 September 2026, when the Ministry of Finance and the National Payments Corporation of India (NPCI) jointly announced a revised MDR framework for select person-to-merchant (P2M) UPI transactions. This guide walks through the legal route the change took, the exact fee schedule, who is protected, why the government made the move now, and the questions that remain open — with every figure checked against at least two independent, reliable sources and anything we could not verify left out.
01
The Timeline: How We Got Here
A six-year zero-MDR mandate did not end overnight — it took a Parliamentary amendment, a Presidential assent and two separate notifications
| Date | What happened |
|---|---|
| Jan 2020 | Zero-MDR takes effect on UPI (P2M) and RuPay debit card transactions, under a Gazette notification dated 30 Dec 2019, amending Section 10A of the Payment and Settlement Systems (PSS) Act, 2007 read with Section 269SU of the Income-tax Act. |
| Mar 2025 | The Payments Council of India (PCI) writes to the Prime Minister seeking a ~0.3% MDR on UPI P2M payments above ₹2,000 for merchants with turnover above ₹20 lakh. |
| Jun 2025 | The Finance Ministry publicly denies reports of any plan to levy MDR on UPI, calling the claims "false, baseless and misleading." |
| 4 Aug 2026 | Finance Minister Nirmala Sitharaman introduces the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha. Beyond its tax provisions, it amends Section 10A of the PSS Act to delink the zero-charge mandate from the Income-tax Act and let the Central Government notify by itself which payment modes stay fee-free. |
| 6 Aug 2026 | Lok Sabha passes the Bill by voice vote. |
| 10 Aug 2026 | Rajya Sabha passes the Bill (as a Money Bill, it can only recommend changes; the Lok Sabha version stands). The Finance Minister reiterates in the House that the amendment is an "enabling provision" and does not itself impose any charge. |
| 17 Aug 2026 | President Droupadi Murmu gives assent; the Ministry of Law confirms this via Gazette notification. The amended PSS Act is now in force. |
| 14 Sep 2026 | The Finance Ministry issues the notification under the amended Section 10A specifying which UPI and RuPay debit card transactions no longer carry automatic zero-MDR protection — the step that operationally opens the door to a fee. |
| 15 Sep 2026 | NPCI's UPI and Services Steering Committee (a 22-member body including banks, the Indian Banks' Association and the Payments Council of India) finalises the rate structure. The Finance Ministry and NPCI jointly publish an explainer/FAQ. The RBI publicly backs the move the same day. |
| 15 Oct 2026 | The new MDR framework takes effect, after a one-month runway for banks, payment aggregators and apps to update their systems. |
Note on sourcing: the legislative dates above (Bill introduction, both House passages, and Presidential assent) are corroborated across parliamentary-tracking sources (PRS Legislative Research), multiple news wires and government broadcaster reports. The 14–15 September notification and rate details are drawn from the Finance Ministry’s own statement, NPCI’s published FAQ, and an RBI post on its official account.
02
What Actually Changed in Law
A subtle but important shift: from an automatic, Income-tax-linked ban on charges, to a discretionary power the government can exercise
Section 10A of the Payment and Settlement Systems Act, 2007 is the provision that stopped banks and payment system providers from charging users on electronic payment modes notified under Section 269SU of the Income-tax Act — a category that includes UPI and RuPay debit cards. Until August 2026, this created a blanket, automatic no-charge mandate tied to a tax-law reference.
The 2026 amendment removes that tax-law tether. It now empowers the Central Government to notify — at its own discretion, through an executive notification rather than a fresh Act of Parliament — exactly which electronic payment modes continue to enjoy zero-MDR protection. Passing the amendment did not, by itself, impose any fee; it simply created the legal room for the government to carve out exceptions later, which is what the 14–15 September notifications then did.
Why this matters for how you read future changes
Because the government can now vary the zero-MDR list by notification rather than by passing a new law each time, similar changes to thresholds, caps or exempted categories can happen faster in future. DWS will track and verify any such notification before reporting it as final.
03
The New Fee Structure, Category by Category
Nine distinct treatments, from fully free to a capped 0.4% — here is exactly what applies to what
| Transaction type | Charge from 15 Oct 2026 | Cap |
|---|---|---|
| Person-to-person (P2P) — any amount | Free — always | — |
| P2M (merchant) payments up to ₹2,000 | Free | — |
| P2M payments above ₹2,000 (standard) | 0.4% of transaction value | ₹300 (kicks in at ₹75,000+) |
| Small merchants under the P2PM zero-MDR framework (up to ₹1 lakh/month via UPI QR) | Free on all transactions | — |
| Railways, telecom, insurance, fuel, agricultural inputs (above ₹2,000) | Flat ₹5 per transaction | ₹5 (flat, not %-based) |
| Government utility bills — electricity, water, piped gas (above ₹2,000) | Flat ₹5 per transaction | ₹5 (flat) |
| Education fees — school/university tuition (above ₹2,000) | Flat ₹5 per transaction | ₹5 (flat) |
| Capital markets — mutual funds, stockbrokers, securities, broker top-ups | 0.02% of transaction value | ₹300 |
| UPI AutoPay / mandates (recurring bills, OTT, SIPs) | No MDR at all | — |
Worked examples (standard 0.4% P2M slab)
- A ₹3,000 payment to a merchant attracts ₹12 in MDR.
- A ₹50,000 payment attracts ₹200 in MDR.
- A ₹75,000 payment or higher is capped at ₹300 — so a ₹1,00,000 payment also attracts only ₹300, not ₹400.
In every case above, the ₹5 flat fee or the 0.4%/0.02% MDR is charged to the merchant’s account by the payment ecosystem, not deducted from the amount you send or added to your bank statement as a separate consumer charge.
04
Who Is Fully Protected
The government’s own data suggests roughly 4% of P2M transactions will actually see a charge
Every consumer, always
Individuals never pay MDR. The Finance Ministry has stated explicitly that “MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments.” NPCI has gone further and barred UPI app providers (PhonePe, Google Pay, Paytm and others) from levying any platform fee or hidden charge on users, and banks have been directed to ensure merchants do not pass the MDR on to customers as a surcharge or “convenience fee” — the same anti-surcharge principle already applied to card payments.
Small merchants — the P2PM safety net
Vendors who receive UPI QR payments of up to ₹1 lakh a month directly into their own bank account fall under what NPCI calls the Person-to-Person-Merchant (P2PM) framework and continue to pay zero MDR on every transaction, however large a single payment might be. There is no requirement to register for GST or upgrade QR infrastructure to qualify. Acquiring banks track monthly inflows through a velocity check; only if a merchant crosses ₹1 lakh a month for three consecutive months are they reclassified into the standard, chargeable P2M category. This protection extends specifically to rural and semi-urban QR payments, which the government has flagged as a policy priority.
Recurring payments
UPI AutoPay and e-mandates — used for monthly utility bills, OTT subscriptions and recurring SIP investments — carry no MDR under the new framework, regardless of amount.
No one is allowed to charge you extra for using UPI. If a shopkeeper, biller or platform adds a “UPI processing fee” or similar line item to your bill after 15 October 2026, that goes against NPCI’s explicit instructions to banks and merchants — raise it with the merchant first, and if unresolved, complain to your bank or through NPCI’s grievance channel.
05
Why the Government Made This Change Now
Scale, cost and a shrinking subsidy pool converged
UPI’s growth made the old zero-cost model harder to sustain in its original form. NPCI processed 2,451 crore transactions worth ₹29.9 lakh crore in August 2026 alone. The government had been informed, in a submission to a Parliamentary committee, that the annual cost of processing UPI’s person-to-merchant payments runs to roughly ₹20,700 crore — a cost previously absorbed mainly through the government’s own budgetary incentive scheme for banks.
That scheme — the Incentive Scheme for Promotion of RuPay Debit Cards and Low-Value BHIM-UPI Transactions (P2M), which reimburses acquiring banks up to 0.15% of the value of small UPI payments — has not kept pace with UPI’s scale. Year-on-year budgetary payouts (as reported in Parliament and Budget documents) were:
| Financial year | Amount paid / budgeted |
|---|---|
| 2021-22 | ₹1,389 crore |
| 2022-23 | ₹2,210 crore |
| 2023-24 | ₹3,631 crore |
| 2024-25 | ₹1,922.77 crore |
| 2025-26 | ₹2,196.21 crore |
| 2026-27 (budgeted) | ₹2,000 crore |
The Payments Council of India — whose members include major banks, payment aggregators and app providers — had publicly called the FY26-27 allocation inadequate, warning it risked “choking the entire ecosystem for funds” given that payment companies were, in its words, processing crores of free transactions daily without earning anything directly from UPI itself. The new MDR is the government’s answer: a market-funded revenue stream to replace an increasingly stretched subsidy, with the stated aims of funding acceptance infrastructure, cybersecurity and fraud-detection investment, and giving smaller fintech entrants — not just the largest, best-capitalised players — a viable path to sustain UPI operations.
Separately, NPCI has said 5% of total MDR collections will be set aside for a dedicated fund to expand UPI acceptance among small merchants, with a reported annual size of around ₹700 crore, targeted particularly at Tier III–VI towns, the north-eastern states, Jammu & Kashmir and Ladakh. The government’s earlier Payments Infrastructure Development Fund, which served a similar acceptance-expansion purpose, had wound down in December 2025. Officials say the modalities of the new fund are still being worked out in consultation with the RBI, with details expected within about three months of the announcement.
06
What Regulators, Industry and Merchants Are Saying
A mostly cautious, watch-and-see reception — not a uniform verdict
The regulator’s view
The Reserve Bank of India publicly backed the move on the day it was announced, stating on its official account that “the introduction of MDR on large-value UPI transactions (i.e., above ₹2,000) is an important step towards strengthening the long-term sustainability of India’s digital payments ecosystem,” while stressing that “all UPI transactions — P2P and P2M — shall remain free for users.”
The industry’s view
Vishwas Patel, chairman of the Payments Council of India, told Business Standard the MDR is “expected to further sustain the growth of UPI and not necessarily create profit pools for companies,” and would help fund cybersecurity and technology infrastructure investment. A payments-industry expert quoted by Deccan Chronicle described the framework as striking “a pragmatic balance between driving infrastructure growth and protecting grassroots adoption,” given that roughly 95% of everyday transactions and small merchants remain zero-rated.
An economist’s caution
Not every commentator was convinced by the design. Prasanna Tantri, a professor at the Indian School of Business, publicly argued that the calibration of the new framework does not follow the pattern of what he called successful industrial policy — a reminder that the debate over how, not whether, to price UPI merchant transactions is not fully settled even among people who broadly favour ending the zero-MDR era.
What merchants themselves said, before the announcement
Two independent surveys conducted in the weeks before the 15 September announcement suggested real merchant resistance to bearing any MDR. A LocalCircles survey found only about 17% of surveyed merchants were willing to bear a rate of 0.3% or more, while a separate Business Standard-reported survey found two in five merchants were unwilling to bear any MDR at all — with a meaningful share saying they would consider passing the cost on or nudging customers toward cash or cards, an outcome the new anti-surcharge instructions to merchants and banks are specifically designed to prevent.
Markets
Shares of listed payment companies — Paytm’s parent One97 Communications, One Mobikwik, Pine Labs and AvenuesAI — had rallied in August 2026 on early reports that an MDR was coming, with one brokerage note estimating a potential ₹5,000–10,000 crore annual revenue opportunity across such platforms. On the actual 15 September notification, however, some of these stocks dipped intraday, with fund managers quoted as noting that these companies were not earning meaningfully from UPI directly in any case — a reminder that short-term stock moves are a poor guide to the framework’s real consumer or merchant impact.
07
What This Means for You, Specifically
The practical takeaway differs sharply depending on which of these you are
| If you are... | What changes for you |
|---|---|
| An everyday UPI user sending/receiving money, splitting bills, or paying for groceries and small purchases | Nothing. Every P2P transfer and every merchant payment up to ₹2,000 stays completely free, with no monthly caps or quotas. |
| A retiree or investor paying insurance premiums, mutual fund purchases, or stockbroker/IPO-linked payments via UPI | These fall in the cheapest chargeable slab — 0.02%, capped at ₹300 — and the cost sits with the intermediary/platform rather than being visibly deducted from your payment. Worth a periodic check of account statements even so, since enforcement of the anti-pass-through rule is new. |
| A small kirana store, vegetable vendor, or local service provider receiving UPI QR payments | Fully protected as long as your monthly UPI receipts stay at or under ₹1 lakh — the overwhelming majority of India's small merchants fall in this bracket and pay zero MDR, with no GST registration or new QR code required. |
| A larger retailer, restaurant, or shop taking frequent payments above ₹2,000, or above ₹1 lakh a month | You now bear a real, if modest, processing cost (0.4%, capped at ₹300) on affected transactions. You cannot legally recover this from customers as a separate surcharge. |
| Paying utility bills, telecom recharges, fuel, or school/college fees above ₹2,000 through UPI | The biller pays a flat ₹5 regardless of amount — again, not something that should appear as a separate line item on your bill. |
08
What’s Still Unsettled — Watch This Space
Three genuinely open questions, flagged rather than guessed at
Open question 1: GST treatment of the new MDR
MDR is a service fee, and under India’s standing GST framework, such fees attract GST unless specifically exempted — which is exactly why, when MDR was zero between 2020 and 2026, the Finance Ministry itself confirmed there was consequently no GST to charge either. Now that an actual MDR exists again, ordinary GST principles would be expected to apply to it in the normal course, but as of this framework’s announcement we have not found a specific, separate notification confirming the GST treatment of the new UPI MDR. Do not assume either outcome — watch for an explicit CBIC/CBDT clarification before drawing conclusions about pass-through costs.
The 5%-of-MDR fund for expanding UPI acceptance in Tier III–VI towns and the Northeast/J&K/Ladakh is confirmed in principle, but its governance, disbursement mechanism and exact size are still being finalised in consultation with the RBI, with a roughly three-month timeline mentioned by officials at the time of the announcement. Treat the ₹700 crore figure as a reported estimate, not a finalised allocation.
The velocity-check mechanism that moves a small merchant from zero-MDR (P2PM) to standard MDR (P2M) after three consecutive months above ₹1 lakh is newly described, not yet tested at scale. How disputes, seasonal spikes (festive-season sales, for instance) and reclassification notices are handled in practice will only become clear after implementation.
Quick Reference: Free vs Chargeable, From 15 October 2026
| Always free, no matter what | Chargeable (merchant/biller-side only) |
|---|---|
| All P2P transfers, any amount | P2M above ₹2,000 (standard): 0.4%, capped ₹300 |
| P2M payments up to ₹2,000 | Railways/telecom/insurance/fuel/agri-inputs above ₹2,000: flat ₹5 |
| Small merchants under P2PM (≤ ₹1 lakh/month via UPI QR) | Utility bills & education fees above ₹2,000: flat ₹5 |
| UPI AutoPay / e-mandates (any amount) | Capital markets (MF/broking/securities): 0.02%, capped ₹300 |
| Any UPI app "platform fee" — explicitly banned | — |
If you are an ordinary UPI user, a family sending money home, or a small local shopkeeper, this change does not touch you — UPI stays exactly as free as it has always been. The new 0.4% MDR is a merchant-side cost aimed at large-ticket transactions, designed to fund UPI’s infrastructure and security rather than to fund the government. The two things worth actively watching over the next few months are whether merchants quietly pass the cost on despite the explicit ban on doing so, and how the GST treatment of the revived MDR is eventually clarified — we will update this guide the moment either is officially settled.
