Using UPI? Here’s What the New Rules Mean

The short answer is no for most users. The new rules introduce a Merchant Discount Rate, or MDR, on certain UPI payments made to businesses. However, the government has clarified that consumers will not be charged a separate UPI transaction fee. Person-to-person payments will also remain free.

So, what exactly is changing, and what does it mean when you scan a QR code at a shop? Here is what UPI users should know.


If you use UPI to send money to another person, the new MDR framework does not change your payment.


For example, if you send ₹5,000 to a family member, friend or another individual through UPI, you will not suddenly have to pay a percentage of that amount as an MDR charge.


The government has specifically clarified that person-to-person, or P2P, UPI transactions will remain free regardless of the amount transferred, subject to the normal rules of your bank and UPI service.

This means everyday activities such as splitting a restaurant bill, sending rent to another person where the recipient is treated as an individual, or transferring money to family are not affected by the new merchant charge.

The major change concerns certain person-to-merchant, or P2M, transactions.

A P2M transaction happens when you use UPI to pay a business, shop or other eligible merchant. Under the new framework, an MDR of 0.4% will apply to specified merchant transactions above ₹2,000 from October 15, 2026.

MDR stands for Merchant Discount Rate. It is a fee associated with accepting a digital payment. It is not the same as a tax charged to the customer.

For example, imagine you scan a merchant's QR code and pay ₹5,000 for a purchase. If that transaction falls within the new MDR framework, the merchant-side payment ecosystem may attract the applicable MDR.

But this does not mean that you will see an additional 0.4% UPI fee added to your bill.

The government has stated that the MDR cannot simply be passed on to consumers as a UPI transaction charge.

One of the most important details for everyday shoppers is the ₹2,000 threshold.

Eligible UPI merchant payments up to ₹2,000 will remain outside the MDR framework. This means the new MDR does not apply to those qualifying transactions.

Think about the small payments you make during a normal day:

• Buying groceries
• Paying for snacks or coffee
• Ordering a meal
• Paying a local shop
• Buying household items
• Making other small QR-code payments

Many of these transactions are likely to fall below the ₹2,000 threshold.

The government has also said that around 96% of P2M UPI transactions will remain unaffected, according to its September clarification.

So, despite headlines about UPI charges, the change is not a blanket fee on every UPI payment.

This is where the new framework becomes more relevant.

For specified merchant transactions above ₹2,000, an MDR of 0.4% will apply. For transactions of ₹75,000 and above, the MDR is capped at ₹300.

It is important to understand that this is a merchant-side charge, not a new fee that ordinary users have to pay every time they make a large UPI payment.

For example, if you pay an eligible merchant ₹10,000 through UPI, the merchant transaction may fall under the MDR framework. But the amount you approve through your UPI app remains the payment amount shown to you.

This distinction matters because a headline saying "UPI charges from October 15" can easily make people think that every customer will have to pay extra.

That is not what the new framework says.

Not every qualifying merchant transaction follows the standard 0.4% rate.

Certain sectors, including areas such as railways, telecom, insurance and fuel, have been assigned a different MDR structure. For specified transactions above ₹2,000 in these sectors, a flat ₹5 MDR applies.

This is designed to account for sectors where transaction volumes can be high and profit margins may be relatively tight.

For users, the important point is simple: the existence of a merchant-side MDR does not automatically mean you need to stop using UPI for these services.

Your payment experience can still remain the same.

Another important part of the framework is its treatment of smaller merchants.

Qualifying small merchants that receive up to ₹1 lakh per month through UPI QR payments can continue to receive zero MDR. Zero MDR also applies to certain P2PM transactions and specified QR payments in rural and semi-urban areas.

This matters because UPI is not used only by large online businesses.

It is also used by neighbourhood stores, small restaurants, street vendors, service providers and family-run businesses.

The framework is designed to avoid putting the same payment cost on every merchant, regardless of size.

For ordinary UPI users, the answer is no separate UPI transaction charge under this framework.

The government has clearly stated that consumers will not face transaction charges because of the new MDR system. It has also said that UPI will remain free for citizens and that everyday person-to-person transactions will not be charged.

This is important because social media posts and forwarded messages can sometimes simplify a complicated policy into a misleading statement such as "UPI will no longer be free."

The actual change is more limited.

There is a new merchant-side payment framework, but that does not turn UPI into a paid service for consumers.

The new MDR framework also provides for zero MDR on automated recurring standing instructions.

These are payments that happen automatically after you have authorised them, such as certain recurring subscriptions or other approved mandates.

However, users should still check the amount and frequency of recurring payments they have authorised.

A UPI mandate is different from manually making a one-time payment. Keeping track of active mandates can help you avoid unwanted deductions, particularly when you no longer use a subscription or service.

The new framework also includes a separate MDR structure for certain capital-market transactions.

According to the policy details, specified capital-market payments, including areas such as mutual funds, securities, stockbrokers and dealers, will have an MDR of 0.02%, with a maximum cap of ₹300.

This is different from ordinary shopping payments.

If you use UPI for investing or other financial transactions, do not assume that every payment follows exactly the same rules as a QR payment at a shop.

The applicable charges and limits can depend on the type of transaction and the service involved.

UPI became popular partly because it made digital payments simple and inexpensive.

But operating a nationwide payment system involves costs. Banks, payment apps, technology providers and other participants need infrastructure to process transactions, maintain security and handle customer support.

The government has described the new framework as a way to support the long-term sustainability, technological development and resilience of the UPI ecosystem.

The government has also said that most merchant transactions will remain free and that the new MDR will apply only to a limited category of transactions.

In other words, the aim is not to make everyday UPI payments expensive.

It is to create a payment structure that can support the growing UPI ecosystem while protecting consumers and smaller merchants.

For most people, there is no need to change the way they use UPI.

Still, a few simple habits are worth following.

Check the final amount before paying.
Always look at the amount displayed in your UPI app before entering your PIN or completing authentication.

Do not pay a random "UPI fee" just because someone asks.
If a merchant says you must pay an extra amount specifically for using UPI, ask for a clear explanation and check the bill.

Be careful with QR codes.
Before approving a payment, check the recipient or merchant name shown in your UPI app.

Do not believe every forwarded message.
UPI rules can change, and social media posts may leave out important conditions. The government itself has advised citizens to rely on official information from the Ministry of Finance, RBI and NPCI.

Keep your UPI PIN private.
No genuine bank representative or payment-support person needs your UPI PIN to receive a payment or refund.

The phrase "new UPI charges" may sound alarming, but the actual change is more specific.

From October 15, 2026, MDR will apply to certain merchant UPI transactions above ₹2,000. Different rates and exemptions apply depending on the type of merchant and transaction. At the same time, P2P payments remain free, qualifying merchant payments up to ₹2,000 remain outside MDR, and consumers are not supposed to be charged a separate UPI transaction fee.

So if you use UPI to send money to friends, family or other individuals, your everyday experience does not suddenly change.

For shoppers, the main thing is to understand the difference between a merchant-side MDR and a customer fee.

UPI is still designed to remain a convenient payment option for everyday users. The new rules change how some transactions are handled behind the scenes, but they do not mean that every UPI payment will now come with an extra charge.

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