UPI Payments Above Rs 2,000 To Face 0.4% Fee For Merchants; Free For Customers

UPI payments above Rs 2,000 will soon come under a new Merchant Discount Rate (MDR), but customers will not have to pay the charge directly. The National Payments Corporation of India (NPCI) says the new system will apply from October 15, 2026.

For customers, sending money through UPI, transferring funds to a bank account and using UPI apps will remain free. The charge will instead apply to eligible merchants, with several exemptions and special rates for small businesses and certain essential services.

The key point is simple: customers will not pay extra for making a UPI payment. For example, if you pay Rs 3,000 at a shop, you will still pay Rs 3,000. The MDR will be a charge between the merchant and their bank. UPI apps also cannot add a separate platform fee, according to the NPCI FAQ.

There will be no monthly limit on how many times customers can use UPI. UPI merchant payments up to Rs 2,000 will remain outside the MDR system. For payments above Rs 2,000, the standard MDR will be 0.4%, subject to a maximum charge of Rs 300.

NPCI says more than 95% of UPI payments made at shops are currently worth Rs 2,000 or less. Street vendors and small businesses will be protected from the MDR under the P2PM category. Merchants receiving up to Rs 1 lakh in monthly UPI payments through QR codes can qualify, and a GST number will not be required.

However, businesses consistently receiving more than Rs 1 lakh for three consecutive months could be moved into the larger-merchant category. Certain sectors will have different rates. Petrol pumps, telecom, insurance, railways and some utility payments will face a fixed charge of up to Rs 5 per transaction instead of the standard 0.4%.

Payments for mutual funds and stock-market transactions will have an MDR of 0.02%, capped at Rs 300. Some auto-debit payments will remain exempt. NPCI says running the UPI network, maintaining servers and preventing fraud costs around Rs 20,000 crore annually.

UPI processed around 2,451 crore transactions worth Rs 29.9 lakh crore in August 2026. The Tax and Other Laws Amendment Bill, 2026, passed during the Monsoon Session, provided legal protection for UPI and RuPay debit-card payments up to Rs 2,000.

The government notified the change on September 14, while the UPI steering committee was tasked with setting rates above that threshold. Some questions remain, including whether GST will apply to MDR, how the revenue will be divided among banks, UPI apps and NPCI, and what action will be taken if merchants pass the charge on to customers.

Varun Bhasin is a Principal Correspondent with ABP News and has been working in journalism for the past nine years. He covers stories related to airlines, railways and road transport. Prior to this, he has worked with several media organisations.

Varun has also been involved in producing documentary films focused on issues and developments in the news sector. He completed his education at MBM University, Jodhpur. He can be contacted via email at varunb@abpnetwork.com.