India’s Unified Payments Interface (UPI) is set for a major pricing change from October 15, 2026, when selected merchant transactions above Rs 2,000 will attract a Merchant Discount Rate (MDR) of 0.4%. The move will end the six-year zero-MDR system for these payments.

The new fee will apply to person-to-merchant payments, while person-to-person UPI transfers will continue to remain free. Certain small merchants and transactions in specific sectors will also receive exemptions or lower rates.

How Big Is UPI in India?

UPI has become one of India’s main digital payment systems. NPCI data shows that UPI processed about 24.5 billion transactions worth Rs 29.82 lakh crore in August 2026.

The platform is widely used for everything from small shop payments and online purchases to bills, investments and other services. PhonePe and Google Pay account for a large share of UPI transaction value.

This scale means even a small change in the pricing structure can have a significant effect on banks, payment apps and merchants.

What Is the New UPI Merchant Fee?

Under the new structure, a 0.4% MDR will apply to eligible merchant transactions above Rs 2,000. The fee will be capped at Rs 300 for transactions of Rs 75,000 or more.

Some categories will have different rates. Payments involving services such as telecom, railways and certain other sectors will attract lower charges, while specified small merchants will be exempt.

The MDR is a fee associated with accepting a digital payment. It is distributed among participants in the payment ecosystem, including banks and payment service providers, rather than being a direct tax collected from consumers.

Read more: Sitharaman Rebukes CPI(M) MP John Brittas Over UPI Fee Claims in Rajya Sabha

Will UPI Users Have to Pay More?

Consumers are not being directly charged the new MDR. The fee is imposed on eligible merchant transactions, and payment providers and banks have been barred from directly passing the MDR to consumers.

However, concerns remain about whether some businesses could try to recover their costs through other pricing methods or encourage customers to use cash.

Person-to-person transfers, such as sending money to family or friends, remain outside the new MDR structure.

Why Is India Introducing UPI Charges?

The new pricing system is intended to create a more sustainable financial model for UPI. Banks, payment companies and other participants have absorbed costs under the zero-MDR system for years.

According to the government and payments authorities, MDR revenue can support the expansion and maintenance of UPI infrastructure, cybersecurity, customer services and wider adoption in rural and semi-urban areas.

The change also creates a new revenue stream for payment companies and banks that previously processed many UPI payments without a merchant fee. Payment company shares rose after the announcement as investors assessed the potential revenue impact.

Why Are Merchants and Critics Concerned?

Some merchants and critics have raised concerns that introducing a fee could increase the cost of accepting digital payments. Political opposition has also questioned whether merchants could eventually pass those costs on to customers.

Another concern is whether some businesses could encourage cash payments instead of UPI for larger purchases.

For now, the key change is that UPI remains free for person-to-person transfers, while eligible merchant payments above Rs 2,000 will enter a new fee structure from October 15, 2026. The change marks a significant shift in how India finances one of the world's largest real-time digital payment networks.