Attention UPI Users! You won't have to pay a single penny in charges; this is a matter between the merchant and the bank.
Low-value UPI person-to-merchant (P2M) transactions of up to ₹2,000 have been kept outside the scope of the Merchant Discount Rate (MDR). Banks have been instructed to ensure that merchants do not pass on the cost of MDR to customers.
On Tuesday (September 15, 2026), the Central Government implemented a new slab for UPI payments. Under the new slab, an MDR charge of 0.4% has been set for merchant UPI payments exceeding ₹2,000. However, this charge will be borne by the merchant, not the general public. While charges will apply to certain merchant payments above ₹2,000, zero MDR will continue for small merchants and low-value transactions. A new UPI Merchant Discount Rate (MDR) framework for select merchant (P2M) transactions will come into effect on October 15, 2026.
Person-to-merchant transactions kept outside MDR scope
Banks have been directed to ensure that merchants do not recover MDR costs from customers. Low-value UPI person-to-merchant (P2M) transactions of up to ₹2,000 are excluded from the MDR framework. The maximum MDR limit will be ₹300 per transaction. For select merchant categories—such as railways, telecom services, insurance, and fuel—a flat MDR of ₹5 per transaction will apply to UPI payments exceeding ₹2,000. Person-to-person (P2P) UPI transactions will remain free, and P2M transactions up to ₹2,000 will also remain outside the MDR framework.
This means customers can continue using UPI without paying any transaction charges. Small merchants operating under the person-to-person merchant framework will continue to benefit from zero MDR. This category includes small vendors who receive payments of up to ₹1 lakh per month directly into their bank accounts via UPI QR codes.
Proposal for a special fund for small merchants
The new framework also proposes creating a special fund to boost UPI adoption among small merchants, particularly within existing merchant networks and in Tier-3 and smaller markets. According to the NPCI, the initiative aims to strengthen digital payment infrastructure and encourage more small businesses to adopt UPI.
The 'Merchant Discount Rate' (MDR) is the charge levied on merchants for accepting digital payments. The NPCI stated that a flat fee of ₹5 per transaction will apply in sectors such as railways, telecommunications, and fuel, while the MDR for capital market payments will be 0.02%. Small merchants earning up to ₹1 lakh per month via UPI QR codes will remain completely exempt from charges under the new system. The government states that this provision ensures the new charges will not impact 96% of merchant transactions.
