The government has introduced a new Merchant Discount Rate for UPI transactions above Rs 2,000, which will come into effect from October 15. Under the new rules, merchants will have to incur a 0.4 per cent charge, capped at Rs 300. However, this fee will not be borne by customers
In India, most of us just scanned and made payments, courtesy the Unified Payments Interface (UPI). What was even better was that this system of click-and-pay was free.
However, starting October 15, a new charge is coming to UPI payments. But there’s an important catch; you, as the customer making the payment, will not be charged. Instead, the charge will be paid by the merchant to its acquiring bank.
As confusion reigns on who pays for what, here’s a simple guide to explain what you, as the customer, will pay for making UPI payments and for which services.
What is MDR, the new payment being introduced for UPI?
On September 15, the government announced the merchant discount rate (MDR) regime for UPI transactions.
Merchant Discount Rate, known as MDR, is a fee that is charged to merchants by banks and payment service provides for processing digital payments. To make it simpler, when you make a digital payment to a business, the merchant has to incur a small processing fee for this transaction.
For instance, when you use credit or debit cards, such an MDR is imposed. Currently, the MDR on standard credit cards is from 1.5 per cent to 2.5 per cent per transaction, while debit card MDRs can be capped at up to 0.90 per cent.
More from ExplainersAccording to the new rules by the government, the baseline UPI MDR will be 0.4 per cent for transactions above Rs 2,000, with a maximum cap of Rs 300 for transactions of Rs 75,000 and above.
These new payments will be introduced by October 15.
But why is the government introducing MDR charge now?
Every month, UPI processes billions of payments. In fact, according to the National Payments Corporation of India (NPCI), UPI processed 24.51 billion transactions worth Rs 29.90 lakh crore in August 2026 alone. These payments require a lot of handling — such as server capacity, telecom links, cybersecurity monitoring and specialised banking software — which means a lot of spending.
According to NPCI, running the network has cost the industry around Rs 20,000 crore a year.
In order to handle this payment, the government is introducing the MDR within the UPI ecosystem to support investments in infrastructure resilience, innovation, cybersecurity and customer service.
The government has noted that the money will go to banks and app providers to sustain operations and help expansion.
There’s a new charge for UPI payments from October 15. However, uou, as the person making the payment, will not be charged. File image/Reuters
So, what charges does the customer incur for using UPI?
None. As a customer you don’t pay any extra charge for using UPI.
For instance, if you pay Rs 1,500 through UPI at a shop, nothing changes. Even if you pay Rs 3,000, nothing changes for you as the customer. However, the merchant, meaning the shopkeeper, will Rs 12 in MDR.
Even if you make higher payments of over Rs 75,000, the customer incurs no extra charge. The merchant, on the other hand, has to make a payment of Rs 300, which is the maximum MDR.
It’s also important to note that the MDR is only valid for Person-to-Merchant (P2M) transactions. The finance ministry noted that transactions between individuals will remain “completely free”, no matter how much money is being sent.
This means if you are sending money to a friend, relative or a loved one, you will not have to pay any MDR.
As the finance ministry noted, no transaction or platform fee, or other charge may be imposed on individuals for sending or receiving money through UPI, the ministry notes.
Which transactions attract the MDR?
Merchants will have to pay 0.4 per cent MDR on all transactions above Rs 2,000. So, if you go to a supermarket and buy products worth more than Rs 2,001, the supermarket will have to pay Rs 8 as MDR.
If you went to an electronics store and purchased a television worth more than Rs 75,000, the store will pay Rs 300 for the transaction.
However, the standard 0.4 per cent MDR does not apply to every type of merchant payment. Certain categories, including railways, telecom services, insurance and fuel, will have a flat MDR of Rs 5 for transactions above Rs 2,000. Payments for utilities such as electricity, water and piped natural gas bill payments above Rs 2,000 will similarly carry the flat Rs 5 MDR. Payments below Rs 2,000 remain free.
Moreover, UPI payments to capital market intermediaries — mutual funds, stockbrokers, dealers and securities firms — attract a nominal MDR of 0.02 per cent of the transaction value, capped at Rs 300.
For school and other educational fees exceeding Rs 2,000, the government has noted that there will be a flat-fee structure or capped processing rates instead of allowing charges to rise purely as a percentage of the transaction value. Educational transactions up to Rs 2,000 remain completely free of MDR.
Will recurring payments for streaming services attract MDR?
No, automated recurring standing instructions, known as UPI Mandates or AutoPay, will not carry prescribed MDR transaction charges. Payments set up using automated recurring transfers for monthly utility bills, OTT streaming subscriptions, all recurring investments etc will not pay any prescribed MDR charge for the transaction.
The Merchant Discount Rate framework has been imposed to ensure the smooth running of the UPI ecosystem. File image/AFP
But can merchants pass on their MDR to customers?
This is where it becomes a bit tricky. The government has categorically stated that merchants can’t pass on the MDR on to a customer as a UPI fee.
But the merchant hasn’t been stopped from increasing the price of his product or service. For instance, one merchant could absorb the Rs 12 MDR on a Rs 3,000 product. On the other hand, another merchant could increase the price of the product itself.
The FAQ, however, argues that shopkeepers have no economic incentive to inflate retail shelf prices, noting that digital payments attract increased footfall, higher average ticket values, and reduced cash-handling risks.
In conclusion, little changes for the customer. The government has noted that around 96 per cent of P2M transactions will remain unaffected by the new framework.
With inputs from agencies
