UPI Charges Explained: Who Pays, Who Is Exempt Under New Rules?
UPI users will not pay extra charges under the new MDR rules, while small merchants and certain payment categories will remain exempt.
- UPI payments exceeding Rs 2,000 will incur merchant charges from 2026.
- Customers will not pay directly; a 0.4% charge is for merchants.
- Exemptions apply to P2P, micro-merchants, and transactions under Rs 2,000.
UPI payments above Rs 2,000 will attract a Merchant Discount Rate (MDR) from October 15, 2026, but customers will not have to pay the charge directly. The new rules are aimed at merchants, with different rates and exemptions for certain categories. Small traders, person-to-person transfers and payments below the Rs 2,000 threshold will remain outside the standard MDR. Here is a simple breakdown of who will pay, who will be exempt and what the new rules mean for customers using UPI for everyday payments.
Who Pays MDR?
The standard MDR will apply to eligible merchant payments above Rs 2,000.
The rate has been set at 0.4%, with a maximum charge of Rs 300 per transaction. This means a Rs 3,000 payment would attract an MDR of Rs 12, while a Rs 50,000 payment would mean Rs 200.
Importantly, customers will not have to pay this charge. If you make a Rs 3,000 UPI payment at a shop, you will still pay Rs 3,000. The MDR is a charge between the merchant and their bank.
UPI payments between individuals will also remain free.
Also Read: UPI Payments Above Rs 2,000 To Face 0.4% Fee For Merchants; Free For Customers
Who Is Exempt?
Payments of up to Rs 2,000 made to merchants will not attract MDR under the new framework.
Small traders and micro-merchants can also qualify for an exemption. Merchants receiving up to Rs 1 lakh a month through UPI QR payments can be placed in the P2PM category, meaning they will not have to pay MDR. A GST number will not be mandatory for this exemption.
However, merchants who receive more than Rs 1 lakh in UPI payments for three consecutive months could be moved into the larger-merchant category.
What About Other Services?
Some sectors will have separate MDR rates rather than the standard 0.4%.
Petrol pumps, telecom, insurance, railways and certain utility payments will have a fixed charge of up to Rs 5 per transaction. Payments related to mutual funds and the stock market will have an MDR of 0.02%, capped at Rs 300.
Certain auto-debit transactions will remain outside the MDR system.
Will Customers Pay More?
Under the new rules, customers can continue using UPI without paying an additional transaction fee. UPI apps will also not be allowed to impose a separate platform fee.
However, questions remain over GST on MDR, how the revenue will be shared among banks, apps and NPCI, and what action could be taken if merchants try to recover the charge from customers.
Also Read: 'Sky-High Inflation, Empty Pockets': Kharge Slams Govt Over ‘Digital Payments Tax’
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