India Digital

New UPI Charges Above Rs 2,000: What Actually Changes on October 15, 2026

September 28, 2026·6 min read

A Ministry of Finance gazette notification on September 14, 2026, followed by an NPCI policy notification the next day, confirmed that UPI payments to merchants above Rs 2,000 will attract a Merchant Discount Rate (MDR) of 0.4% starting October 15, 2026 — ending the zero-MDR regime that's been in place since January 2020. It's already caused confusion online about who actually pays this and whether it applies to sending money to friends and family. Here's what the notification actually says.

What's changing, specifically

From October 15, 2026, Person-to-Merchant (P2M) UPI payments above Rs 2,000 will carry a 0.4% Merchant Discount Rate, capped at a maximum of Rs 300 per transaction — so a large purchase doesn't scale the fee indefinitely. For a handful of specific merchant categories, including railways, telecom, insurance and fuel, a flat Rs 5 per transaction applies instead of the percentage rate above Rs 2,000. Capital market transactions, such as payments toward mutual funds, securities and stockbrokers, get their own lower rate: 0.02%, also capped at Rs 300.

Who actually pays this — not you, for most transactions

This is a merchant-side processing fee, deducted from the business's settlement amount by NPCI's revenue-sharing structure — not a charge added on top of what a customer pays at checkout. Under that structure, the issuing bank (the one holding the paying customer's account) takes the largest share of the 40-basis-point fee at 40%, followed by merchant-acquiring banks at 30%, the UPI app itself at 20%, with the remainder to bank partners. NPCI has said 96% of transactions and small merchants remain unaffected from October 15 — the fee is specifically aimed at larger, higher-value merchant transactions rather than typical small daily purchases.

What stays completely free

All Person-to-Person (P2P) transfers — sending money to family or friends is unaffected regardless of amount.
Any merchant payment of Rs 2,000 or below — the MDR only applies above that threshold.
No GST on top — the Ministry of Finance has separately and explicitly clarified it is not considering levying GST on UPI transactions above Rs 2,000, addressing a specific rumour that had spread alongside the MDR news.

Why NPCI is doing this now

UPI has operated with zero merchant fees since January 2020, a deliberate subsidy that helped drive adoption to the transaction volumes UPI handles today. A permanent zero-MDR model, though, leaves banks and UPI apps covering the full cost of processing every merchant transaction themselves, with no revenue share to offset infrastructure and support costs at that scale. Introducing a small, capped fee only above Rs 2,000 — while keeping P2P transfers and small purchases free — is a narrower way to introduce some cost recovery without touching the free, everyday UPI experience most individual users actually rely on.

Frequently Asked Questions

Will my UPI payments to shops get more expensive?

For purchases of Rs 2,000 or less, no — those remain free, same as before. For a purchase above Rs 2,000, the 0.4% MDR is a fee the merchant's bank deducts from what the business receives, not an amount added to your bill, though in theory some merchants could pass on some portion of that cost in pricing over time.

Does sending money to a friend on UPI now cost anything?

No — the new MDR applies only to Person-to-Merchant (P2M) payments. Person-to-Person (P2P) transfers, like splitting a bill or sending money to family, remain completely free regardless of the amount.

Is there GST on top of the new UPI MDR?

No — the Ministry of Finance has explicitly clarified that it is not considering levying GST on UPI transactions above Rs 2,000, directly addressing an earlier rumour to that effect that spread alongside the MDR announcement.