New UPI MDR Rules 2026: Charges Above ₹2,000 Explained

Person-to-Person (P2P) transfers, such as sending money to family or friends, will remain free irrespective of the amount, subject to the applicable transaction limits set by NPCI and your bank.

Why is MDR Being Introduced for UPI Transactions?

UPI processed 2,451 crore transactions worth ₹29.9 lakh crore in August 2026. Maintaining this payment infrastructure requires investment in server capacity, cybersecurity, fraud prevention, innovation and customer support.

Under the finalised framework, eligible P2M transactions above ₹2,000 will attract an MDR of 0.4% from 15 October 2026. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.

What is MDR?

MDR, or Merchant Discount Rate, is the fee charged to a merchant for processing a digital payment, particularly a debit or credit card transaction. The Reserve Bank of India (RBI) defines MDR as the rate charged to a merchant for payment-processing services on debit and credit card transactions.

For example, if an eligible merchant receives a UPI payment of ₹3,000, an MDR of 0.4% would amount to ₹12. The merchant pays this amount to the payment ecosystem. The customer continues to pay only ₹3,000.

MDR should not be confused with a single fee retained entirely by one company. The amount can cover different components of the payment ecosystem, including the acquiring bank/payment service provider, card network and card-issuing bank. RBI has therefore required acquiring banks to clearly unbundle MDR for different categories of cards to improve transparency.

Is MDR applicable to every digital payment in India?

No. MDR does not apply uniformly to every digital payment. The applicable rate depends on the type of UPI transaction, the amount, the merchant's classification and the payment category.

UPI operated under a zero-MDR regime from 1 January 2020. From 15 October 2026, this will change only for selected merchant transactions. Person-to-person transfers, customer-facing UPI payments and several merchant categories will continue to remain free.

What Happens to UPI Transactions Above ₹2,000?

The treatment depends on the type of payment and the merchant's classification:

• If you send money to another person, no MDR applies, irrespective of the amount
• If you pay ₹2,000 or less to a merchant, no MDR applies
• If you pay more than ₹2,000 to an eligible regular merchant, the merchant pays 0.4% MDR
• If the payment is ₹75,000 or more, the MDR is capped at ₹300
• If the recipient is an eligible P2PM small merchant, no MDR applies even when an individual payment exceeds ₹2,000
• Certain merchant categories pay a flat ₹5 instead of 0.4%
• The merchant cannot add the MDR separately to your bill while accepting the UPI payment

Example of how MDR Calculation is done:

Are Small Merchants Exempt from UPI MDR?

Small merchants operating under the Person-to-Person-Merchant framework will continue to receive UPI payments without MDR. This category generally covers small vendors receiving up to ₹1 lakh per month through UPI QR payments directly into their accounts.

A single payment above ₹2,000 does not automatically make the merchant liable for MDR. The merchant's overall account classification determines whether MDR applies. Banks and payment service providers will monitor monthly UPI receipts. A merchant receiving more than ₹1 lakh per month for three consecutive months may be moved from the P2PM category to the regular P2M category.

What Should You Know About the New UPI ₹2,000 Rule?

There are a few things you should know about the UPI no-charge rule:

• Effective date: The updated MDR framework will take effect from 15 October 2026.
• The new UPI transaction limit: ₹2,000 is the threshold for the no-charge protection. It is not a limit on how much you can pay through UPI.
• The PIN-less UPI limit: The ₹2,000 rule is not related to PIN-less UPI payments.
• Free product or service charges: A purchase of up to ₹2,000 can still have delivery charges, quick-delivery charges, COD charges or other applicable charges.
• UPI payment fees and service charges are different: UPI apps cannot impose a platform fee or hidden payment charge on customers for making UPI payments. However, charges connected with the underlying product or service, such as delivery charges, convenience charges permitted for a service, or late-payment fees, are separate from UPI MDR.
• Payments above ₹2,000: A payment of ₹2,001 to an eligible regular P2M merchant may attract MDR. However, P2P transfers and payments to eligible P2PM small merchants remain exempt.

Final Thoughts

The new UPI framework does not introduce a transaction fee for customers. You can continue making person-to-person transfers and merchant payments through UPI without paying an additional charge.

From 15 October 2026, eligible merchants will pay MDR on certain P2M payments above ₹2,000. Small merchant exemptions, concessional rates for specified sectors and a ₹300 cap on high-value transactions are intended to limit the impact on businesses while supporting the long-term operation of the UPI ecosystem.

Remember that ₹2,000 is an MDR threshold, not a limit on how much you can pay through UPI.

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