UPI Charges for Merchants: New MDR Rules from 15 October 2026 Explained

For years, UPI has been free for everyone – customers paid nothing, and merchants paid nothing. That changes on 15 October 2026, when a Merchant Discount Rate (MDR) starts applying to larger UPI payments made to businesses. If you run a shop, an online store, or accept payments through Pay2All, here is what you need to know.

What is MDR on UPI?

MDR (Merchant Discount Rate) is the fee a merchant pays for accepting a digital payment. It is deducted from the amount settled to the merchant and shared among the banks, payment service providers and UPI apps that process the transaction. Card payments have always carried MDR; UPI person-to-merchant (P2M) payments were exempt under the zero-MDR policy since 2020. The new framework brings back a small, capped charge on high-value merchant payments only.

New UPI merchant charges at a glance

Transaction type	Charge
Person-to-person (P2P) transfers, any amount	Free
Merchant (P2M) payments up to ₹2,000	Free
Merchant payments above ₹2,000	0.4% of the amount
Merchant payments above ₹75,000	Capped at ₹300 per transaction
Railways, telecom, insurance, fuel, utilities, agriculture	Flat ₹5 per transaction
Mutual funds, securities, stockbrokers	0.02%, capped at ₹300
Small merchants (P2PM) receiving up to ₹1 lakh per month	Free
UPI AutoPay / mandates, recurring bills and subscriptions	Free

Who actually pays?

The merchant, not the customer. Banks and payment apps have been directed not to pass the MDR on to customers, so the price a customer sees stays the same. The fee is deducted from the merchant’s settlement, exactly the way card MDR works today.

Who is exempt?

• Small merchants: Businesses in the P2PM (small merchant) category collecting up to ₹1 lakh a month via QR pay nothing. Most kirana stores, street vendors and small service providers fall here.
• Payments up to ₹2,000: Every merchant payment of ₹2,000 or less is free, regardless of the merchant’s size.
• P2P transfers: Sending money to a friend or family member is free at any amount.
• Recurring payments: UPI AutoPay mandates, utility bills, subscriptions and investment SIPs are exempt.

The government estimates that only around 4% of UPI transactions will be affected, and 5% of MDR collections will go into a fund to support small-business expansion.

Worked examples

• A customer pays ₹1,500 at a clothing store → ₹0 charge.
• A customer pays ₹5,000 at an electronics shop → 0.4% = ₹20 deducted; merchant receives ₹4,980.
• A customer pays ₹1,00,000 for furniture → 0.4% would be ₹400, but the cap applies → ₹300 deducted.
• A customer pays a ₹3,000 electricity bill → flat ₹5.

What this means for merchants

For the majority of retailers, nothing changes – small tickets and small monthly volumes remain free. For merchants with higher average order values, the effective cost is still lower than typical card MDR, and the ₹300 cap keeps large-ticket costs predictable. It is worth reviewing your pricing and margins on orders above ₹2,000, and making sure your merchant category is correctly registered so that sector-specific rates (like the ₹5 flat fee) apply where they should.

How Pay2All helps

Pay2All’s UPI collection and checkout solutions automatically apply the correct rate by merchant category and transaction slab, with clear line-item settlement reports so you can see exactly what was deducted and why. If you are unsure which category your business falls under, reach out to our support team and we will help you get it right before 15 October.

FAQs

Will my customers be charged for paying via UPI?
No. MDR is a merchant-side fee and cannot be passed on to customers.

Does the 0.4% apply to the whole amount or only above ₹2,000?
On the whole transaction amount, once the payment exceeds ₹2,000.

Do RuPay credit card on UPI payments follow the same rule?
Credit-on-UPI transactions follow the card network’s MDR structure, which was already in place. The new rules cover bank-account-linked UPI payments.

Is there any change to UPI transaction limits?
No. The MDR framework does not change existing UPI transaction limits.