The real truth about UPI charges! Why will PhonePe and Paytm be 80% cheaper compared to card payments?

Starting October 15, 2026, a 0.4% charge—known as the Merchant Discount Rate (MDR)—will apply to certain UPI transactions exceeding ₹2,000. This new charge will not apply to every UPI payment, nor will it be collected from customers making the payments; the entire cost will be borne by the shopkeeper or merchant. Following the announcement of this new charge, UPI users are wondering whether they should switch from UPI to debit or credit cards for their daily transactions. The National Payments Corporation of India (NPCI) stated in a tweet that, even with the charge, UPI transactions remain significantly cheaper than those involving debit or credit cards. Here is the full breakdown of the calculations.

How much cheaper is UPI compared to debit and credit cards?
The NPCI tweeted an explanation of the UPI MDR structure: the MDR is zero for transactions up to ₹2,000—a category that accounts for approximately 96% of all UPI transactions. For transactions exceeding ₹2,000, the UPI MDR is 0.4%, subject to a maximum cap of ₹300. In a post on X (formerly Twitter), the NPCI stated that the new UPI MDR is lower than the standard rates typically associated with debit and credit card payments.

Which UPI transactions will incur zero MDR?
Most daily UPI payments will not attract any MDR. Zero MDR will continue to apply to P2M (Person-to-Merchant) transactions of up to ₹2,000, which are estimated to constitute about 96% of total UPI transactions.

Small merchants will continue to enjoy zero MDR.
This new charge will not automatically apply to street vendors and other small businesses. Merchants receiving up to ₹1 lakh per month via UPI QR codes under the Person-to-Person-Merchant (P2PM) category will not be charged any fees on their transactions. This means local shops, street vendors, and other eligible small businesses can continue accepting UPI payments without incurring the new MDR, even for transactions exceeding ₹2,000.

What happens to UPI payments exceeding ₹2,000?
Payment Amount | Applicable Charge
₹5,000 | ₹20
₹10,000 | ₹40
₹50,000 | ₹200
₹75,000 | ₹300
₹1 lakh (Max limit) | Remains ₹300

Different MDR for essential services
For certain essential and low-margin sectors, a flat MDR of ₹5 per transaction will apply to transactions exceeding ₹2,000. These sectors include railways, telecom, insurance, fuel, and agriculture-related goods. A flat charge of ₹5—rather than a calculated 0.4%—has been set to provide businesses in these sectors with greater certainty regarding their payment costs.

Very low rates for capital market payments
A separate charge has been fixed for payments related to capital markets. Transactions involving mutual funds, securities, stockbrokers, and dealers will attract a charge of 0.02%, capped at a maximum of ₹300 per transaction. For instance, the MDR on a capital market payment of ₹10,000 at the 0.02% rate would be just ₹2.

Will UPI become expensive for customers?
No. This UPI charge will have to be borne by the shopkeeper; it is a payment processing charge that customers making UPI payments will not have to pay. Banks have been advised to ensure that merchants do not pass the burden of this charge on to customers. UPI application providers are also not permitted to levy platform fees or hidden charges on customers under the guise of MDR. People will be able to continue using UPI without any monthly transaction quotas or limits on free usage.

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