UPI Charges From October 15: What Changes for Customers and Merchants, and What Stays Free
October 7, 2026: With just over a week to go, here is a plain-language guide to the new UPI merchant charges scheduled to take effect on October 15, 2026. The change follows a finance ministry notification on September 14, and the Supreme Court declined to stay it on September 28 while hearing a petition challenging it.
What Stays Free
- Person-to-person (P2P) transfers, such as sending money to friends or family, remain free.
- Merchant payments up to ₹2,000 remain free of MDR.
What Changes
- Eligible person-to-merchant (P2M) UPI payments above ₹2,000 can attract a merchant discount rate (MDR).
- As reported by Inc42, the rate is 0.4%, capped at ₹300 per transaction; the cap is reached at a payment of ₹75,000.
- The framework includes thresholds intended to exempt smaller merchants, and these thresholds are among the points being challenged in court.
Example
| Payment to a merchant | MDR at 0.4% (charged to the merchant) |
|---|---|
| ₹1,500 | Nil (below threshold) |
| ₹5,000 | ₹20 |
| ₹20,000 | ₹80 |
| ₹1,00,000 | ₹300 (cap) |
Who Pays the MDR?
MDR is charged to the merchant by banks and payment service providers for processing the payment. It is not a tax and is not collected by the government, the Centre told the Supreme Court. Whether merchants absorb the cost or reflect it in prices is a business decision.
What Customers Should Do
- Check the amount before approving any UPI payment, as always.
- If a merchant asks for an extra amount for UPI, ask for a clear receipt showing any charges.
- Remember: you never need to enter your UPI PIN to receive money, and fraudsters may exploit confusion around new rules. Ignore messages claiming you must "activate" or "pay a fee" to keep using UPI.
What Merchants Should Do
- Contact your bank or payment service provider to understand which transactions will be charged and how settlements will show the fee.
- Review pricing and margins for high-value sales.
- Keep an eye on the Supreme Court case and any clarifications from NPCI or the RBI.
Why the Change?
UPI has operated largely under a zero-MDR regime since 2020, supported by a government incentive scheme for low-value transactions. Banks and payment firms have argued that zero MDR limits investment in infrastructure, security and merchant acquisition. The government has said around 96% of merchant transactions would remain unaffected. Critics, including some traders, worry that charges could push some high-value payments back to cash.
The Legal Challenge
The Supreme Court has asked the Centre, RBI and NPCI to respond within four weeks on the legal basis and nature of the charge. The framework proceeds from October 15 unless the court orders otherwise.
FAQ
Will I be charged for sending money to a friend on UPI?
No. Person-to-person transfers remain free.
Does the charge apply to all merchant payments?
No. It applies to specified merchant payments above ₹2,000, subject to exemptions in the framework.