UPI New Rules 2026: India’s Unified Payments Interface (UPI) is set to undergo an important change from October 15, 2026, with the introduction of a new Merchant Discount Rate (MDR) framework for certain merchant transactions. Under the new rules, a 0.4% MDR will apply to specified Person-to-Merchant (P2M) UPI transactions above ₹2,000. For transactions of […]
UPI New Rules 2026: India’s Unified Payments Interface (UPI) is set to undergo an important change from October 15, 2026, with the introduction of a new Merchant Discount Rate (MDR) framework for certain merchant transactions.
Under the new rules, a 0.4% MDR will apply to specified Person-to-Merchant (P2M) UPI transactions above ₹2,000. For transactions of ₹75,000 or more, the MDR will be capped at ₹300 per transaction.
However, this does not mean that customers will start paying a 0.4% UPI charge. Person-to-Person (P2P) UPI payments will remain free, merchant payments up to ₹2,000 will remain free, and eligible small merchants will continue to receive zero-MDR treatment.
In this article, we explain the old UPI rules vs new UPI rules, what MDR means, who will pay the new charge, how much MDR will apply to different transaction amounts, and what the changes mean for customers and merchants.
What Is UPI MDR?
MDR stands for Merchant Discount Rate.
It is a payment-processing charge associated with accepting certain digital payments. Under the new UPI framework, MDR applies within the merchant payment ecosystem rather than being a direct charge on the customer.
The government has clarified that MDR is not a tax collected by the government or NPCI. It is distributed among participants in the payment ecosystem, including banks, payment service providers and UPI application providers.
For example, if an eligible merchant receives a ₹5,000 UPI payment and the applicable MDR is 0.4%:
₹5,000 × 0.4% = ₹20
The applicable MDR would therefore be ₹20.
The customer, however, continues to pay ₹5,000, rather than ₹5,020, under the announced framework.
Old UPI Rules vs New UPI Rules 2026
The biggest difference between the old and new UPI framework is the treatment of certain higher-value merchant transactions.
Under the earlier zero-MDR framework, UPI P2M transactions generally had zero MDR. The government had also operated incentive schemes to encourage low-value BHIM-UPI payments and small-merchant adoption.
From October 15, 2026, specified P2M transactions above ₹2,000 will attract MDR.
UPI Old vs New Rules Comparison Table
| UPI Rule | Old UPI Framework | New UPI Framework from Oct. 15, 2026 |
|---|---|---|
| Person-to-Person (P2P) payment | Free | Free |
| Merchant payment up to ₹2,000 | Zero MDR | Zero MDR |
| Eligible P2M payment above ₹2,000 | Zero MDR | 0.4% MDR |
| Transaction of ₹75,000 or more | Zero MDR | MDR capped at ₹300 |
| Eligible small P2PM merchants | Zero MDR | Zero MDR |
| Essential/thin-margin sectors above ₹2,000 | Zero MDR | ₹5 flat MDR |
| Capital-market transactions | Zero MDR under previous framework | 0.02% MDR, capped at ₹300 |
| Customer UPI transaction fee | No | No MDR charged to customer |
| P2P transaction amount | Free | Free regardless of amount |
| Effective date | Existing framework | October 15, 2026 |
The government says approximately 96% of P2M transactions will remain unaffected, because they are either below ₹2,000 or covered by the zero-MDR framework for eligible small merchants.
What Was the Old UPI MDR Rule?
Before the new framework, UPI operated under a zero-MDR model for UPI payments.
This helped UPI become widely accepted by merchants and consumers. The government also supported low-value BHIM-UPI transactions through incentive schemes.
For example, under the FY 2024-25 incentive scheme, small merchants received zero MDR on UPI transactions up to ₹2,000, while an incentive of 0.15% was provided for qualifying low-value transactions.
Therefore, under the old framework, a merchant receiving a ₹5,000 UPI payment would generally not have an MDR deducted.
Example Under Old Rules
Suppose a customer buys a product worth:
₹5,000
and pays through UPI.
| Particular | Old Rule |
|---|---|
| Purchase amount | ₹5,000 |
| MDR rate | 0% |
| MDR | ₹0 |
| Customer payment | ₹5,000 |
| Merchant MDR cost | ₹0 |
What Is the New UPI MDR Rule?
From October 15, 2026, a 0.4% MDR will apply to specified P2M UPI transactions above ₹2,000.
The new framework also introduces a maximum MDR of ₹300 for transactions of ₹75,000 or more.
This means the MDR calculation changes depending on the transaction amount.
For example:
₹3,000 × 0.4% = ₹12
Therefore, an eligible merchant transaction of ₹3,000 would have an MDR of ₹12.
The customer would still pay ₹3,000 under the announced framework.
New UPI MDR Calculation Examples
The following examples make the new UPI rules easier to understand.
| UPI Transaction Amount | Standard MDR | Calculated MDR | Applicable MDR |
|---|---|---|---|
| ₹1,000 | 0.4% | ₹4 | ₹0 |
| ₹2,000 | 0.4% | ₹8 | ₹0 |
| ₹3,000 | 0.4% | ₹12 | ₹12 |
| ₹5,000 | 0.4% | ₹20 | ₹20 |
| ₹10,000 | 0.4% | ₹40 | ₹40 |
| ₹25,000 | 0.4% | ₹100 | ₹100 |
| ₹50,000 | 0.4% | ₹200 | ₹200 |
| ₹75,000 | 0.4% | ₹300 | ₹300 |
| ₹1,00,000 | 0.4% | ₹400 | ₹300 |
| ₹2,00,000 | 0.4% | ₹800 | ₹300 |
The ₹300 cap applies to standard eligible transactions of ₹75,000 and above.
Example: ₹2,000 UPI Payment
Suppose you purchase groceries worth ₹2,000 from a merchant.
Because the transaction is at the ₹2,000 threshold, the standard P2M transaction remains under the zero-MDR framework.
| Particular | Amount |
|---|---|
| Purchase amount | ₹2,000 |
| MDR | ₹0 |
| Customer pays | ₹2,000 |
| Merchant MDR | ₹0 |
So, the new MDR does not mean every UPI transaction will attract a charge.
Example: ₹3,000 UPI Payment
Now suppose you purchase a product worth ₹3,000.
The payment is above ₹2,000.
The standard MDR calculation is:
₹3,000 × 0.4% = ₹12
| Particular | Amount |
|---|---|
| Purchase value | ₹3,000 |
| MDR rate | 0.4% |
| MDR | ₹12 |
| Customer’s additional MDR | ₹0 |
| Merchant-side MDR | ₹12 |
The customer continues to pay ₹3,000.
Example: ₹10,000 UPI Payment
For a ₹10,000 eligible merchant transaction:
₹10,000 × 0.4% = ₹40
Therefore:
| Particular | Amount |
|---|---|
| Transaction value | ₹10,000 |
| MDR rate | 0.4% |
| MDR | ₹40 |
| Customer payment | ₹10,000 |
| Merchant-side MDR | ₹40 |
Example: ₹50,000 UPI Payment
For a ₹50,000 transaction:
₹50,000 × 0.4% = ₹200
Therefore, the merchant-side MDR would be ₹200.
| Particular | Amount |
|---|---|
| Transaction value | ₹50,000 |
| MDR rate | 0.4% |
| Calculated MDR | ₹200 |
| Customer pays | ₹50,000 |
| Merchant-side MDR | ₹200 |
Example: ₹1 Lakh UPI Payment
This is where the MDR cap becomes important.
For ₹1,00,000:
₹1,00,000 × 0.4% = ₹400
However, the new framework caps the MDR at ₹300 for transactions of ₹75,000 and above.
Therefore:
Applicable MDR = ₹300
| Particular | Amount |
|---|---|
| Transaction amount | ₹1,00,000 |
| MDR at 0.4% | ₹400 |
| Maximum MDR | ₹300 |
| Applicable MDR | ₹300 |
| Customer pays | ₹1,00,000 |
Will Customers Have to Pay UPI Charges?
One of the biggest questions surrounding the new UPI rules is whether customers will have to pay additional charges.
According to the government’s clarification, customers will not pay MDR.
Banks have been advised to ensure that merchants do not pass the MDR charge to customers. UPI application providers are also prohibited from imposing platform fees or hidden charges under the framework.
So, if you make an eligible ₹10,000 merchant payment:
Customer pays: ₹10,000
The MDR calculation of ₹40 is a merchant-side payment ecosystem charge.
What About Person-to-Person UPI Payments?
The new MDR framework does not apply to ordinary Person-to-Person (P2P) UPI payments.
For example, if you send ₹25,000 to your friend or family member, the amount remains outside the MDR framework.
Similarly, sending ₹1 lakh to another person through a P2P UPI transaction does not mean you will pay 0.4% MDR.
P2P Examples
| Transaction | MDR |
|---|---|
| Send ₹500 to friend | ₹0 |
| Send ₹5,000 to family | ₹0 |
| Send ₹25,000 to friend | ₹0 |
| Send ₹1,00,000 to another person | ₹0 |
The government has specifically stated that P2P UPI transactions will remain free regardless of the amount transferred.
What About Small Merchants?
Small merchants receive special protection under the new framework.
Eligible small merchants receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category will continue to receive zero MDR on their transactions.
This is particularly relevant for:
- Street vendors
- Small grocery stores
- Local shops
- Small service providers
- Neighbourhood businesses
Therefore, simply receiving a payment above ₹2,000 does not automatically mean every small merchant will have to pay the standard 0.4% MDR. The merchant’s classification and applicable conditions matter.
New UPI Rules for Essential Services
The new framework also provides a separate MDR treatment for certain essential and thin-margin sectors.
Specified transactions above ₹2,000 in sectors such as:
- Railways
- Telecommunications
- Insurance
- Fuel
- Agricultural inputs
will attract a flat ₹5 MDR per transaction rather than the standard 0.4% rate.
Example
Suppose an eligible fuel transaction is:
₹5,000
Standard 0.4% calculation would be:
₹5,000 × 0.4% = ₹20
But where the specified essential-sector rule applies:
MDR = ₹5
This is designed to provide greater cost certainty for specified essential and thin-margin categories.
UPI MDR for Capital-Market Transactions
The new framework also provides a separate MDR rate for certain capital-market payments.
Transactions involving categories such as:
- Mutual funds
- Securities
- Stockbrokers
- Dealers
will attract an MDR of 0.02%, subject to a maximum of ₹300 per transaction.
Example
For an eligible ₹50,000 capital-market payment:
₹50,000 × 0.02% = ₹10
Therefore:
| Transaction | Rate | MDR |
|---|---|---|
| ₹50,000 | 0.02% | ₹10 |
| ₹1,00,000 | 0.02% | ₹20 |
| ₹5,00,000 | 0.02% | ₹100 |
| ₹15,00,000 | 0.02% | ₹300 cap |
Why Is UPI MDR Being Introduced?
UPI has experienced rapid growth in transaction volume and value. The new MDR framework is intended to create a revenue mechanism within the payment ecosystem to support areas such as:
- Payment infrastructure
- Cybersecurity
- System resilience
- Innovation
- Customer service
- Expansion of digital-payment infrastructure
The government says the objective is to improve the long-term sustainability of the UPI ecosystem while continuing to protect individuals and small merchants.
How Much of UPI Will Actually Be Affected?
The new MDR does not apply to every UPI payment.
According to the government’s September 15, 2026 clarification, MDR is expected to apply to only around 4% of merchant transactions, meaning approximately 96% of P2M transactions will remain unaffected.
This is because many transactions are either:
- ₹2,000 or below, or
- covered under the zero-MDR provisions for eligible small merchants.
UPI Old Rules vs New Rules: Simple Example
Let’s compare the same ₹10,000 purchase under both systems.
Old UPI System
A customer purchases a product for ₹10,000.
MDR = ₹0
Merchant receives the payment without an MDR deduction under the zero-MDR framework.
New UPI System
A customer purchases a product for ₹10,000.
MDR = ₹10,000 × 0.4% = ₹40
The customer still pays:
₹10,000
The applicable merchant-side MDR is:
₹40
Comparison
| Particular | Old UPI Rule | New UPI Rule |
|---|---|---|
| Product price | ₹10,000 | ₹10,000 |
| Customer pays | ₹10,000 | ₹10,000 |
| MDR | ₹0 | ₹40 |
| Merchant-side MDR | ₹0 | ₹40 |
| Customer’s additional UPI fee | ₹0 | ₹0 |
Important Difference Between UPI MDR and UPI Customer Charges
MDR and a customer transaction fee are not the same thing.
MDR is a payment ecosystem charge associated with accepting certain merchant payments.
A customer transaction fee would be an amount directly charged to the person making the payment.
Under the new framework, the announced MDR is on eligible merchant transactions and is not intended to become an additional customer fee.
This distinction is important because headlines saying “UPI will now have a 0.4% charge” can be misleading if they imply that customers will automatically pay 0.4% more.
Does the New Rule Mean UPI Is No Longer Free?
Not exactly.
UPI remains free for:
- Person-to-person transactions
- Standard merchant payments up to ₹2,000
- Eligible small merchants covered by the zero-MDR P2PM framework
The change primarily introduces MDR for specified higher-value merchant transactions.
UPI New Rules 2026: Quick Comparison
| Category | Old Rule | New Rule |
|---|---|---|
| P2P UPI | Free | Free |
| P2M ≤ ₹2,000 | Zero MDR | Zero MDR |
| P2M > ₹2,000 | Zero MDR | 0.4% MDR |
| P2M ≥ ₹75,000 | Zero MDR | Maximum ₹300 MDR |
| Eligible small P2PM merchants | Zero MDR | Zero MDR |
| Essential sectors > ₹2,000 | Zero MDR | ₹5 flat MDR |
| Capital-market payments | Previous zero-MDR framework | 0.02%, maximum ₹300 |
| Customer MDR | ₹0 | ₹0 |
| New framework | — | From October 15, 2026 |
What Should UPI Users Know?
There are several important points that consumers and merchants should remember about the new UPI MDR rules.
First, UPI is not becoming a blanket paid service. The new MDR applies only to specified merchant transactions.
Second, P2P payments remain free. Sending money to friends and family does not attract the new P2M MDR.
Third, payments up to ₹2,000 to merchants remain zero-MDR.
Fourth, eligible small merchants continue to receive protection under the P2PM zero-MDR framework.
Fifth, the standard MDR is 0.4% for specified P2M transactions above ₹2,000, with a ₹300 cap from ₹75,000 upward.
Finally, customers are not supposed to pay the MDR as an additional UPI transaction charge.
Frequently Asked Questions About New UPI Rules 2026
Is UPI going to become chargeable from October 15, 2026?
No blanket UPI charge is being introduced for customers. The new framework introduces MDR for specified P2M transactions above ₹2,000, while P2P transactions and eligible low-value transactions remain free.
What is the new UPI MDR rate?
The standard MDR is 0.4% on specified P2M UPI transactions above ₹2,000.
What is the maximum UPI MDR?
For standard eligible P2M transactions of ₹75,000 and above, MDR is capped at ₹300 per transaction.
Will customers pay the 0.4% UPI charge?
No. The announced framework places MDR within the merchant payment ecosystem. Customers are not supposed to be charged MDR as an additional UPI payment fee.
Is a ₹2,000 UPI payment free?
Yes. Standard P2M UPI payments up to ₹2,000 remain zero-MDR.
Will sending ₹50,000 to a friend attract MDR?
No. P2P UPI transactions remain free regardless of the amount.
Will small shops pay 0.4% MDR?
Eligible small P2PM merchants receiving up to ₹1 lakh per month through UPI QR codes continue to receive zero MDR under the applicable framework.
When will the new UPI MDR rules start?
The new framework is scheduled to take effect from October 15, 2026.
Does MDR mean UPI tax?
No. The government has specifically clarified that MDR is not a tax collected by the government or NPCI. It is a charge within the payment ecosystem.
Final Takeaway
The UPI new rules 2026 introduce an important change to the way some merchant transactions are processed.
Under the old zero-MDR framework, UPI merchant payments generally did not carry MDR. From October 15, 2026, specified P2M transactions above ₹2,000 will attract a 0.4% MDR, with the charge capped at ₹300 for transactions of ₹75,000 or more.
However, this does not mean that customers will suddenly pay 0.4% extra whenever they use UPI.
P2P UPI payments remain free, merchant payments up to ₹2,000 remain zero-MDR, eligible small merchants remain protected, and the MDR is a merchant-side payment ecosystem charge.
For example, if you purchase something worth ₹10,000 and pay through an eligible UPI merchant transaction, the MDR calculation would be ₹40. The announced framework does not make the customer pay ₹10,040; the MDR is handled within the merchant payment ecosystem.
The practical difference between the old and new system is therefore mainly on the merchant side, particularly for specified higher-value P2M transactions.
