New changes will soon be introduced in the Indian Unified Payments Interface (UPI). From October 15, 2026, MDR of 0.4 per cent will be applicable on select UPI transactions worth more than ₹2,000 that are made to merchants.
However, this does not necessarily imply that the customers will end up paying a fee each time they make UPI payments exceeding ₹2,000. This particular fee is for merchants' transactions and falls within the payment ecosystem. UPI payments from person to person will still be free, irrespective of the payment value.
The change has created confusion among UPI users, especially around whether payments above ₹2,000 will now become chargeable.
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What Is Changing in UPI Payments?
Under the new framework, UPI payments to merchants above ₹2,000 will attract an MDR of 0.4% from October 15.
MDR stands for Merchant Discount Rate, and it is a charge incurred through merchant transactions. This charge is shared by the parties in the payments value chain, which includes banks and payment service providers.
For transactions of ₹75,000 or more, the MDR will be capped at ₹300 per transaction. This means the new framework is primarily focused on merchant payments rather than regular transfers between individuals.
Will Customers Have to Pay UPI Charges?
One of the most significant things for regular customers is that P2P transactions using UPI would continue to remain free. In case you send money to somebody using UPI, there would be no MDR charge irrespective of whether you are sending ₹500, ₹5,000, or even more than that.
Payment of the MDR fee to merchants up to ₹2,000 will also be free under the new scheme. The government has also told the banks that the merchants should not impose the charge of MDR on customers.
This means the new UPI charges above ₹2,000 should not be understood as a direct transaction fee that every customer will have to pay.
Small Merchants Will Remain Exempt
New regulations also provide protection to small firms. Small firms getting up to ₹1 lakh per month via UPI QR code payments in the prescribed small merchant segment will still be eligible for zero MDR on their transactions.
This includes businesses such as street vendors, neighbourhood shops and other small merchants. According to the government, around 96% of merchant UPI transactions will remain unaffected by the new framework.
Special Charges for Certain Sectors
Additional regulations apply to a few important sectors as well. Transactions above Rs. 2,000 done through the UPI platform in sectors like railway, telecoms, insurance, fuels, and agriculture would be charged an MDR at a flat rate of Rs. 5 rather than the usual 0.4% rate.
There is also a special rate applicable in cases of specific capital market transactions, such as mutual funds, securities, and stock brokers. Different rates have been introduced, taking into consideration the nature and margins of various business entities.
Why Has the UPI Fee Been Introduced?
UPI has become one of the most popular forms of digital payments in India, with millions of transactions happening on a monthly basis. The new model would help build a sustainable payment ecosystem for UPI that can cover the costs incurred by setting up and running the platform.
The government has also clarified that MDR is not a government tax and is not a charge collected by the government or NPCI as revenue.
Instead, it is distributed among participants in the payment ecosystem. The change is therefore aimed at creating a revenue mechanism for eligible merchant transactions while keeping everyday person-to-person payments free.
What UPI Users Need to Remember
The important point to understand is that charges above ₹2,000 do not imply that customers will definitely have to pay for all big transactions via UPI. In case of transferring money to another person, the transaction will still remain free.
If you are paying a merchant, payments up to ₹2,000 will remain free. For eligible merchant payments above ₹2,000, MDR will apply within the payment ecosystem, but customers are not supposed to be charged this fee directly. The new rules will come into effect from October 15, 2026.
Conclusion
Under the revised UPI scheme, certain large transactions for merchants are processed differently. As of October 15, any eligible merchant transactions greater than ₹2,000 will be charged MDR at 0.4%.
However, normal users are still able to send money using UPI without being charged for any transactions. Transactions with small merchants and up to ₹2,000 will be exempt from any fees as per the framework provided.
Therefore, the headline “UPI payments above ₹2,000 will be charged” requires some explanation. The newly introduced fee is basically an MDR that applies only to merchant transactions and not all UPI transactions.