UPI Charges Above ₹2,000 From October 2026: What You Need to Know

UPI has become one of the most widely used digital payment methods in India. Millions of customers use UPI every day to pay shops, businesses, service providers, online sellers and other merchants.

From 15 October 2026, a new Merchant Discount Rate (MDR) framework will apply to certain UPI transactions above ₹2,000. However, this does not mean that customers will start paying a UPI transaction fee.

Under the new framework, specified Person-to-Merchant (P2M) UPI transactions above ₹2,000 will attract an MDR of 0.4%, subject to applicable category-specific rules and a maximum MDR of ₹300 per transaction for transactions of ₹75,000 and above. Person-to-Person (P2P) transactions will remain free.

This article explains the new UPI charges, who will pay them, whether customers have to pay anything, how much merchants will be charged, what happens to small merchants, and how GST on UPI MDR may work.

What Is UPI MDR?

MDR stands for Merchant Discount Rate.

It is a fee associated with accepting a digital payment through a payment network. Under the new UPI framework, MDR applies to certain merchant transactions and is distributed among participants in the payment ecosystem.

The MDR is not a tax collected by the Government and it is not a separate income tax or GST charge on the customer simply because the customer uses UPI.

The government has clarified that the MDR is distributed among participants in the payment ecosystem, including banks and payment application providers, to support the operation and expansion of the UPI ecosystem.

When Will UPI Charges Start?

The new UPI MDR framework will become effective from:

15 October 2026

The framework applies to specified Person-to-Merchant (P2M) transactions above ₹2,000.

The important point is that the announcement does not mean every UPI transaction above ₹2,000 will automatically become chargeable to the customer.

The treatment depends on the type of transaction and merchant category.

Will Customers Have to Pay UPI Charges?

No. Customers will not be charged MDR for making UPI payments.

The new MDR is a merchant-side charge within the payment ecosystem.

According to the government clarification:

• Person-to-Person UPI transactions remain free.

• P2M transactions up to ₹2,000 remain free of MDR.

• Eligible small merchants continue to receive zero-MDR treatment.

• Specified P2M transactions above ₹2,000 are subject to MDR.

• The MDR is not supposed to be passed on to the customer as a separate UPI charge.

Therefore, if you are a normal consumer making a UPI payment, you should not assume that you will have to pay an additional 0.4% simply because the payment exceeds ₹2,000.

What Is the New UPI MDR Rate Above ₹2,000?

For specified P2M transactions above ₹2,000, the MDR is:

0.4%

For transactions of ₹75,000 and above, the MDR is capped at:

₹300 per transaction

For example:

The ₹300 cap becomes relevant at ₹75,000 because 0.4% of ₹75,000 is ₹300.

Example: UPI Payment of ₹3,000

Suppose a customer purchases goods worth ₹3,000 from an eligible merchant and pays through UPI.

The MDR calculation would be:

₹3,000 × 0.4% = ₹12

The ₹12 is the MDR associated with the merchant transaction.

It does not mean that the customer should be charged ₹3,012 merely because the payment was made through UPI.

The government's clarification states that consumers will continue to transact free of cost and that the merchant-side MDR should not be passed on to customers.

Example: UPI Payment of ₹10,000

Suppose an eligible merchant receives ₹10,000 through UPI.

MDR:

₹10,000 × 0.4% = ₹40

Therefore, the applicable MDR before considering any applicable taxes or other charges would be ₹40.

The customer should not be asked to pay an additional ₹40 merely because the merchant has incurred MDR.

Example: UPI Payment of ₹1 Lakh

For a ₹1,00,000 eligible merchant transaction:

0.4% of ₹1,00,000 = ₹400.

However, the applicable MDR is capped at ₹300 per transaction for transactions of ₹75,000 and above.

Therefore:

MDR = ₹300

This cap is important for businesses receiving high-value UPI payments.

Are UPI Payments Below ₹2,000 Still Free?

Yes.

Person-to-Merchant UPI transactions up to ₹2,000 remain outside the MDR framework.

This means a customer paying ₹500, ₹1,000 or ₹2,000 to an eligible merchant through UPI will not incur this new MDR.

The government has stated that approximately 96% of P2M transactions will remain unaffected by the new framework.

What About UPI Payments Above ₹2,000 Between Two Individuals?

There is an important difference between P2P and P2M transactions.

P2P means Person-to-Person

For example:

• Sending ₹5,000 to a friend

• Sending ₹20,000 to a family member

• Transferring money to another individual

• Sending money to your own bank account where the transaction is treated as P2P

These transactions remain free under the new framework.

There is no 0.4% MDR simply because the amount is above ₹2,000.

P2M means Person-to-Merchant

This is when a customer pays a business or merchant.

Examples include:

• Paying a retail shop

• Paying an online seller

• Paying a restaurant

• Paying a service provider

• Paying an eligible business through a merchant QR code

Specified P2M transactions above ₹2,000 can attract MDR under the new framework.

What Happens to Small Merchants?

The new framework contains a separate zero-MDR treatment for eligible small merchants.

Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the applicable P2PM category will continue to receive zero MDR treatment.

This is particularly relevant for:

• Street vendors

• Small neighbourhood shops

• Small retailers

• Micro businesses

• Small service providers

Therefore, a small merchant should not automatically assume that every UPI payment received above ₹2,000 will result in a 0.4% MDR.

The merchant's classification under the applicable framework matters.

Does the ₹2,000 Limit Apply to the Customer or Merchant?

The ₹2,000 threshold relates to the merchant transaction framework, not a rule saying that consumers cannot make UPI payments above ₹2,000 for free.

For example, sending ₹10,000 to another person remains outside the MDR framework.

Similarly, P2M transactions up to ₹2,000 remain free of MDR.

The charge is relevant to specified merchant transactions above ₹2,000.

Are All Merchant Transactions Above ₹2,000 Charged at 0.4%?

No.

The standard rate for specified P2M transactions above ₹2,000 is 0.4%, but the framework also provides different treatment for certain sectors and categories.

This is why merchants should not simply multiply every UPI payment by 0.4% without checking the applicable category.

Special ₹5 MDR for Certain Essential Sectors

Certain specified sectors will have a flat MDR of ₹5 for transactions above ₹2,000 instead of the standard 0.4% rate.

The government has identified sectors including:

• Railways

• Telecommunications

• Insurance

• Fuel

• Agricultural inputs

The flat-rate approach is intended to provide greater cost certainty for specified essential and thin-margin sectors.

For example, a qualifying transaction above ₹2,000 in one of these specified categories could attract a flat ₹5 MDR rather than 0.4%.

The exact applicability depends on the transaction and merchant category under the applicable framework.

What About UPI Payments for Mutual Funds and Stock Market Transactions?

The new framework also provides a separate rate for certain capital-market related transactions.

Payments relating to:

• Mutual funds

• Securities

• Stockbrokers

• Dealers

are subject to an MDR rate of 0.02%, capped at ₹300 per transaction, under the framework described by the government.

This is significantly different from the standard 0.4% rate applicable to specified P2M transactions.

Is UPI MDR a Tax?

No. MDR itself is not a tax.

MDR is a payment-processing related charge within the payment ecosystem.

The government has specifically clarified that MDR is neither a tax nor a charge collected by the Government or NPCI. It is distributed among payment ecosystem participants.

However, GST treatment can apply to the MDR/service fee.

Reports citing tax experts state that the applicable MDR will attract 18% GST, and eligible registered businesses may be able to claim input tax credit subject to the normal GST rules and conditions.

Therefore, businesses should distinguish between:

UPI MDR ≠ GST

but GST may be applicable on the relevant service/fee.

Example of GST on UPI MDR

Suppose an eligible merchant transaction is ₹10,000.

MDR at 0.4%:

₹10,000 × 0.4% = ₹40

If 18% GST is applicable on the ₹40 MDR:

₹40 × 18% = ₹7.20

Total MDR plus GST:

₹47.20

The precise accounting and tax treatment should be based on the fee/invoice actually charged by the relevant payment service provider and the merchant's GST status.

A GST-registered business satisfying the applicable conditions may be able to claim ITC on eligible GST paid on such business expenses.

Can a GST-Registered Merchant Claim ITC on UPI MDR?

A GST-registered merchant may be able to claim input tax credit on GST charged on eligible payment-processing services, subject to the normal requirements of the GST law.

The merchant should have appropriate documentation, the expense should qualify as an eligible input service, and other ITC conditions must be satisfied.

Therefore, businesses should retain:

• MDR invoices

• Payment gateway statements

• Bank statements

• GST invoices

• Settlement reports

These records can help reconcile payment charges and GST.

Can a Merchant Charge the Customer the 0.4% UPI MDR?

The government's framework says merchants should not pass the MDR on to customers.

Therefore, a business should not simply add:

"UPI charge – 0.4%"

to a customer's bill because the customer chose UPI.

The Finance Ministry has advised banks to ensure that merchants do not pass the newly introduced charge to customers.

Businesses should therefore check the instructions issued by their acquiring bank, payment aggregator or payment service provider before making any changes to customer billing.

Why Is UPI MDR Being Introduced?

The government and NPCI have explained that the MDR framework is intended to support the sustainability and continued expansion of the UPI ecosystem.

UPI operates at very large scale and requires investment in:

• Payment infrastructure

• Cybersecurity

• System resilience

• Innovation

• Customer service

• Banking and payment infrastructure

The MDR is distributed within the payment ecosystem rather than being collected as government revenue.

Will Google Pay, PhonePe and Paytm Charge Customers for UPI?

The new MDR framework does not mean that customers will automatically be charged by Google Pay, PhonePe, Paytm or another UPI application for making an eligible UPI payment.

The government's clarification is that consumers will continue to use UPI without MDR being charged to them.

However, users should always distinguish between the MDR framework and any separate service or platform charges that may exist for particular products or transactions under applicable terms.

UPI Charges From 15 October 2026: Quick Summary

The exact treatment depends on the transaction and merchant category under the applicable framework.

Frequently Asked Questions About UPI Charges

Will UPI become chargeable from October 2026?

UPI will not become generally chargeable for consumers. The new framework introduces MDR for specified merchant transactions above ₹2,000 from 15 October 2026.

Will I have to pay 0.4% when I pay a shop using UPI?

No. The 0.4% MDR is a merchant-side charge under the applicable framework. Consumers are not supposed to bear the MDR.

Is UPI payment above ₹2,000 to a friend chargeable?

No. P2P UPI transactions remain free irrespective of the amount transferred.

Is a ₹2,000 UPI merchant payment chargeable?

P2M transactions up to ₹2,000 remain outside the MDR framework.

What is the UPI MDR rate above ₹2,000?

For specified P2M transactions above ₹2,000, the standard MDR is 0.4%, subject to applicable caps and category-specific rules.

What is the maximum UPI MDR?

For standard specified P2M transactions, MDR is capped at ₹300 for transactions of ₹75,000 and above.

Will small shops have to pay UPI MDR?

Eligible small merchants under the applicable zero-MDR category can continue to receive UPI payments without MDR. The framework refers to small merchants receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category.

Is UPI MDR a tax?

No. MDR is a payment ecosystem charge and is not a government tax.

Is GST applicable on UPI MDR?

GST may apply to the applicable MDR/service fee. Current reporting indicates an 18% GST treatment, with eligible GST-registered businesses potentially able to claim ITC subject to applicable conditions.

Can a merchant recover UPI MDR from the customer?

The government has advised banks to ensure that merchants do not pass the MDR on to customers.

Does the new MDR apply to all UPI transactions?

No. P2P transactions, P2M transactions up to ₹2,000 and eligible zero-MDR small-merchant transactions remain outside the standard MDR framework.

Final Takeaway

The introduction of UPI MDR from 15 October 2026 does not mean that consumers will suddenly have to pay a 0.4% fee every time they use UPI.

The key distinction is between consumer payments and merchant-side MDR.

P2P UPI transactions remain free, merchant payments up to ₹2,000 remain outside MDR, and eligible small merchants continue to receive zero-MDR treatment. For specified merchant transactions above ₹2,000, the standard MDR is 0.4%, with a ₹300 cap for transactions of ₹75,000 and above. Certain essential sectors and capital-market transactions have separate rates.

For businesses, the important step is to understand their merchant category, review their payment-provider settlement statements and invoices, and account for applicable MDR and GST correctly.

As the new framework takes effect, merchants should also follow updated instructions from their acquiring bank, payment aggregator and UPI service provider because the exact accounting and settlement treatment can depend on the merchant category and payment arrangement.

Last Updated: September 2026