Beginning 15 October 2026, India's widely used UPI payment network will for the first time attach a cost to a slice of merchant payments, even as the individuals paying remain untouched. A 0.4% merchant discount rate, capped at ₹300, will fall on larger person-to-merchant transactions, with the stated purpose of keeping the ecosystem's infrastructure, security and service sustainable over the long run. It is a small shift in who carries the expense of a convenience that millions now take for granted, and it places India within a wider pattern across Asia in which merchants, rather than custome
UPI Merchant Fee Framework Takes Effect 15 October; Consumers and P2P Payments Stay Free
UPI stays free for individuals; the fee lands on the merchant side.
Mark
So is UPI no longer free?
Mimi
For people paying, it still is. The 0.4% lands on the merchant, and only on specified merchant payments above ₹2,000.
Mark
Who actually gets the money?
Mimi
It's shared among participants like banks, payment service providers and UPI app providers. It isn't a tax, and neither the government nor NPCI collects it.
Luke
Worth flagging that the 96% figure is the government's expectation, not a measured result. We don't know yet how it holds up.
Mark
And the ₹300 cap?
Mimi
It applies from ₹75,000 up. A ₹1 lakh payment pays ₹300 instead of ₹400.
Mark
Does every payment over ₹2,000 get 0.4%?
Mimi
No. It depends on the category and how the merchant is classified. Railways, telecom, insurance, fuel and agricultural inputs pay a flat ₹5, and securities-related payments pay 0.02% with the same cap.
Luke
Right, and the reporting doesn't spell out how merchants get classified, or whether merchants will pass the cost on to customers. That's unanswered.
Mark
How does this compare abroad?
Mimi
Indonesia and Malaysia both have merchant-side fees with exemptions for small businesses. The details differ by country.
Luke
Those are two examples, not a full survey, so I'd be careful about calling India typical.
O Pulso
- A 0.4% merchant discount rate ends the zero-fee model for UPI payments above ₹2,000 starting 15 October 2026, a change that merchants and fintech firms must absorb quickly.
- Banks, payment aggregators and fintech applications are scrambling to reconfigure systems before the deadline, with category rules still needing implementation.
- Essential sectors such as railways, fuel and insurance face a flat ₹5 charge, while securities and mutual fund payments face 0.02%, creating a patchwork of rules to navigate.
- The government frames the fee as necessary for infrastructure, cybersecurity and innovation, and expects about 96% of merchant transactions to remain unaffected, so the impact is expected to land on a narrow band of high-value payments.
Beginning 15 October 2026, India's widely used UPI payment network will for the first time attach a cost to a slice of merchant payments, even as the individuals paying remain untouched. A 0.4% merchant discount rate, capped at ₹300, will fall on larger person-to-merchant transactions, with the stated purpose of keeping the ecosystem's infrastructure, security and service sustainable over the long run. It is a small shift in who carries the expense of a convenience that millions now take for granted, and it places India within a wider pattern across Asia in which merchants, rather than customers, bear the cost of digital payments.
From 15 October 2026, UPI will no longer be entirely free of merchant charges. A 0.4% Merchant Discount Rate will apply to a defined set of person-to-merchant payments above ₹2,000. The person paying still pays nothing, and the charge falls on the merchant side, shared among banks, payment service providers and UPI application providers.
The government's reason is the long-term sustainability of the ecosystem, meaning funding for infrastructure, innovation, cybersecurity and customer service. The fee is not a tax, and neither the government nor NPCI collects it. At the top end, the rate is capped at ₹300, so a ₹1 lakh payment carries ₹300 instead of ₹400.
Much remains unchanged. Person-to-person transfers stay free, small merchant payments up to ₹2,000 keep zero MDR, and about 96% of merchant transactions are expected to be unaffected. Essential sectors such as railways, fuel and insurance will pay a flat ₹5, while securities-related payments pay 0.02%. The ₹2,000 threshold is not a simple switch, since treatment depends on category and merchant classification.
Across the region, countries differ in thresholds and exemptions, though most charge some merchant-side fee. Indonesia's QRIS offers zero fees on small transactions, and Malaysia's DuitNow QR waives fees for many micro and small businesses. For Indian consumers, UPI remains free for individuals, and the real test now lies in how banks and providers put these category rules into practice before the deadline.
From 15 October 2026, India's Unified Payments Interface will stop being entirely free of merchant charges. A Merchant Discount Rate of 0.4% will apply to a defined set of person-to-merchant payments above ₹2,000, ending the zero-MDR model for that slice of transactions. The person making the payment will still pay nothing.
The government's stated reason is the long-term sustainability of the UPI ecosystem, meaning money for infrastructure, innovation, cybersecurity and customer service. The charge falls on the merchant side and will be shared among participants such as banks, payment service providers and UPI application providers. It is not a tax, and neither the government nor NPCI collects it.
The arithmetic is simple at the top end. The 0.4% rate is capped at ₹300 for transactions of ₹75,000 and above. An eligible merchant payment of ₹1 lakh would therefore carry ₹300 in MDR rather than the ₹400 that the flat percentage would produce.
Much stays as it is. Person-to-person transfers remain free whatever the amount. Merchant payments up to ₹2,000 keep zero MDR, and eligible small merchants stay inside the zero-MDR framework. The government expects about 96% of P2M transactions to be unaffected.
Some categories get lower rates. Transactions above ₹2,000 in essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat ₹5 MDR. Payments involving mutual funds, securities, stockbrokers and dealers will attract 0.02%, also subject to a ₹300 cap.
The ₹2,000 threshold is not a switch that applies 0.4% to every larger payment. The treatment depends on the transaction category and on how the merchant is classified under the framework. The Department of Financial Services has said the 15 October date is meant to give banks, payment aggregators, fintech applications and businesses time to change their systems.
The Livemint report also places India alongside other countries, noting that merchant-side fees on digital payments are common even though the structures differ. In Indonesia, the central bank's QRIS framework gives micro merchants 0% MDR on transactions up to 500,000 rupiah. From 1 October 2026, the zero-fee threshold was extended to transactions up to 100,000 rupiah for small, medium and large merchants too.
In Malaysia, DuitNow QR carries merchant transaction fees, but Bank Negara Malaysia says major banks and selected non-bank providers continue to waive them for micro and small businesses. Individual customers pay no extra charge for using DuitNow QR.
The common thread is that countries differ in their thresholds, merchant exemptions and rates, not in whether a merchant-side fee exists. For Indian consumers, the practical point is that UPI stays free for individuals from 15 October, and most everyday payments sit outside the new fee. What remains to be seen is how banks and payment providers put the category rates, including the ₹5 and 0.02% rules, into practice before the deadline.
Citações Notáveis
The framework is intended to support the long-term sustainability of the UPI ecosystem, including infrastructure, innovation, cybersecurity and customer service.— Government of India (paraphrased)
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Politics & Governance