UPI Charges From 15 October: Will You Pay the New 0.4% MDR?

Short answer: no, you will not pay. From 15 October 2026, a 0.4% merchant discount rate (MDR) applies to UPI payments above ₹2,000 made to large merchants — and the merchant pays it, not you. MDR is the fee a business pays its bank for accepting a digital payment. Sending money to friends and family stays free at any amount, every payment up to ₹2,000 stays free for the merchant too, and the Finance Ministry has said the charge must not be passed on to customers. This guide covers the exact rates, who is exempt, and what to do if a shop tries to add a “UPI surcharge” anyway.

What changes on 15 October

UPI has run on a zero-MDR mandate since January 2020 — businesses paid nothing to accept it, which is a big reason every chaiwala has a QR code. That changes only for one slice of payments: person-to-merchant (P2M) transactions above ₹2,000, received by large merchants. NPCI says payments up to ₹2,000 make up more than 96% of UPI merchant volume, so the vast majority of everyday payments are untouched.

Who pays what: the rate card

Transaction	MDR from 15 Oct	Who pays
Person to person (any amount)	Nil	—
Any merchant payment up to ₹2,000	Nil	—
Small merchant (P2PM), any amount	Nil	—
Large merchant, above ₹2,000	0.4%, capped at ₹300	Merchant
Railways, telecom, insurance, fuel, agri inputs (above ₹2,000)	Flat ₹5	Merchant
Mutual funds, securities, brokers (above ₹2,000)	0.02%, capped at ₹300	Merchant/institution

A “small merchant” here is the P2PM category — roughly, a vendor receiving up to ₹1 lakh a month through UPI QR codes. Your sabziwala, kirana store and istriwala stay at zero MDR on every payment, whatever the size.

The worked numbers (merchant side)

You pay ₹2,500 at a large electronics chain: the store's bank deducts 0.4% = ₹10. You pay ₹2,500, the store receives ₹2,490.
A ₹10,000 appliance: 0.4% = ₹40 to the merchant.
A ₹1,00,000 payment: 0.4% would be ₹400, but the fee is capped at ₹300 (the cap kicks in at ₹75,000, where 0.4% equals exactly ₹300).
A ₹20,000 train-ticket or insurance-premium payment: flat ₹5, not 0.4%.
A ₹50,000 lump-sum mutual fund purchase via UPI: 0.02% = ₹10, borne by the fund side — your SIP instalments and autopay mandates keep working exactly as before, and nothing extra leaves your account.

Can a shop add a “UPI surcharge”?

No. The Finance Ministry has stated the MDR is a merchant-side cost and must not be passed on to customers — the sticker price is what you pay. If a merchant adds a separate “UPI fee” at checkout, you can decline, pay another way, and flag it to the merchant's bank or on the NPCI/your UPI app's grievance channel. (Card acceptance has always carried MDR, and the same no-surcharge principle has applied there too.) Expect some large merchants to quietly prefer cash or cards for big-ticket sales; the rules don't stop them from offering a discount for other modes, only from charging extra for UPI.

Why bring back MDR at all?

Zero MDR made UPI free to accept but left banks and apps running the rails at a loss, dependent on government incentive payouts. The new framework routes the fee to the people who maintain the system — under NPCI's proposed split, roughly 40% goes to the bank that issued your account, 30% to the consumer app (GPay, PhonePe, Paytm and others) and 30% to the merchant's acquiring side, with 5% of collections set aside in a fund to support small merchants. The bet is that charging only large merchants on high-value payments funds the system without breaking the QR-code economy. It is also one of several money rules that changed this month — the full list is in our October 2026 rules guide.

What you should actually do

As a customer: nothing. Your UPI payments — P2P and merchant — cost you ₹0, same as before. Autopay mandates, SIPs, bill payments and rent transfers to individuals are unaffected.
Watch receipts for a month.If a “convenience fee” appears specifically for UPI on payments above ₹2,000, that's the merchant passing on MDR — push back or switch mode.
If you run a side business:check whether you're registered as P2PM (small merchant) or full P2M with your QR provider. Under ₹1 lakh a month in UPI collections, you should be paying nothing.
Splitting a big payment into two smaller UPI transfers to duck the fee is the merchant's problem to solve, not yours — the charge never lands on the payer either way.

Bottom line: 15 October changes the economics of UPI for large businesses, not for you. The number to remember is ₹0 — what you pay — and the number merchants will remember is 0.4%. If you hold a shop or freelance QR code, confirm your P2PM status; everyone else can keep scanning.