New UPI Charges From October 15: Will You Pay More For Every Transaction? All You Need to Know

New UPI charges from October 15 explained: Find out who pays MDR, whether customers will be charged and what happens to UPI payments above Rs 2,000.

New Delhi: The next time you scan a UPI QR code to pay a large shopping bill, the transaction may work a little differently. A new Merchant Discount Rate (MDR) framework for certain UPI payments will come into effect from October 15, bringing charges into the merchant payment ecosystem for specified transactions above Rs 2,000.

But there is an important catch that many UPI users may miss. The new framework does not mean that people will start paying a UPI fee every time they send money or make a payment. The government has made it clear that person-to-person UPI transfers will remain free, while customers are not supposed to be charged MDR on eligible merchant payments.

So what exactly is changing, who will bear the cost and will anything change for your everyday UPI payments? Here is the complete explainer.

What Is Changing From October 15?

The new framework applies to specified person-to-merchant, or P2M, UPI transactions above Rs 2,000.

For most eligible merchant transactions above that threshold, the MDR has been set at 0.4% of the transaction value. There is also a cap of Rs 300 for transactions of Rs 75,000 and above.

This is a merchant-side charge within the payment ecosystem. It is not a new fee that customers have to add to their UPI payment.

Will You Pay A UPI Charge While Sending Money To Someone?

No, If you transfer money to a friend, family member or another individual, the transaction will remain free irrespective of the amount.

That means sending Rs 500, Rs 5,000 or even a much larger amount to another person through UPI will not attract the new MDR.

The government has also said that individuals will not face a monthly quota or volume-based fee for using UPI.

What If You Pay A Shopkeeper?

This is where the new rule matters. UPI payments to merchants up to Rs 2,000 will remain free. If an eligible merchant payment is above Rs 2,000, the applicable MDR can come into play.

For most such transactions, the rate is 0.4%.

For example, on a Rs 10,000 eligible merchant transaction, 0.4% works out to Rs 40. On Rs 20,000, it would be Rs 80. At Rs 50,000, it would be Rs 200.

The important point is that this is not supposed to become an additional Rs 40, Rs 80 or Rs 200 charge on the customer's UPI bill.

Can A Merchant Add The MDR To Your Bill?

The government has specifically clarified that customers are not supposed to pay MDR.

Banks have been advised to ensure that merchants do not pass the charge on to customers. UPI application providers have also been prohibited from imposing platform fees or hidden charges on individuals for UPI transactions.

In practical terms, a customer paying Rs 10,000 through UPI should not be asked to pay another Rs 40 as a separate UPI charge merely because MDR applies to that transaction.

What Happens To Payments Below Rs 2,000?

Nothing changes for customers.

Merchant payments of up to Rs 2,000 will continue without MDR. This covers a large share of the everyday UPI payments made at shops, restaurants and other businesses.

The government estimates that around 96% of merchant transactions will remain unaffected because they either fall below the Rs 2,000 threshold or are covered by zero-MDR provisions for small merchants.

What About Small Shops And Street Vendors?

There is a separate zero-MDR provision for small merchants.

Small merchants, including street vendors and neighbourhood shops, receiving up to Rs 1 lakh per month through UPI QR codes under the specified P2PM category will continue to enjoy zero MDR on their transactions.

This means the new framework is not designed to put a new payment cost on every small business using a UPI QR code.

What About Fuel, Railway Tickets And Insurance Payments?

Some essential and thin-margin sectors have a separate structure.

For eligible payments above Rs 2,000 involving railways, telecommunications, insurance, fuel and agricultural inputs, a flat MDR of Rs 5 per transaction will apply.

So the calculation is different from the standard 0.4% rate.

For example, an eligible Rs 10,000 payment to a fuel outlet would attract the specified Rs 5 MDR within the payment ecosystem rather than a 0.4% charge. The customer is still not supposed to pay that amount separately.

What About Stocks And Mutual Funds?

Capital-market related payments also have a separate MDR structure.

Payments involving mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, subject to a maximum of Rs 300 per transaction.

Is MDR A Tax?

No, MDR or Merchant Discount Rate, is not a tax collected by the government or NPCI.

It is a charge within the payment ecosystem and is distributed among participating entities such as banks, payment service providers and UPI application providers.

The government has said the framework is intended to support the long-term operation, security and expansion of the UPI ecosystem.

Why Is UPI Getting An MDR Framework Now?

UPI has expanded rapidly and is now deeply embedded in everyday payments across India. Maintaining that system involves costs related to technology, infrastructure, cybersecurity and fraud prevention.

The new framework creates a limited merchant-side revenue mechanism while keeping person-to-person transfers free and protecting low-value transactions and small merchants.

The government says MDR will apply to only around 4% of merchant transactions, leaving roughly 96% unaffected.

Does This Mean UPI Is No Longer Free?

For ordinary users, that is not the right way to read the new rule.

If you are sending money to another person, there is no MDR.

If you are making a merchant payment of up to Rs 2,000, there is no MDR.

If you are a qualifying small merchant covered by the zero-MDR provision, the transaction remains free from MDR.

The new charge primarily concerns specified higher-value merchant transactions, and the cost sits within the merchant-side payment ecosystem rather than being imposed directly on the customer.

UPI Charges: The Simple Answer

The biggest takeaway is simple: you do not have to start paying a UPI fee just because the new MDR framework is coming into force.

From October 15, eligible merchant transactions above Rs 2,000 will be subject to the new MDR structure. But sending money to another person remains free, payments to merchants up to Rs 2,000 remain free, and customers are not supposed to be charged MDR separately.

So before assuming that every UPI payment will now cost extra, check whether the payment is actually a merchant transaction covered by the new framework.