The Tool Desk
Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →Outbyte Driver Updater FREEFix the driver behind crashes, sound loss and screen glitchesFind Drivers →UPI is still free for people sending money to one another, and many merchant payments remain zero-MDR. But under the framework announced by India’s Ministry of Finance on 15 September 2026, some larger merchant transactions can incur a merchant discount rate (MDR). The government says merchants must not pass that fee to customers. UPI is free at the point of use in many cases, not costless to operate: earlier government incentives helped fund the system, while the new selective fees are intended to support its continued operation and expansion.
What UPI charges apply under the September 2026 framework?
The rules below are India-wide, as stated by the Ministry of Finance on 15 September 2026. MDR is a fee within the merchant payment ecosystem, not a fee charged to the person paying. The Ministry says person-to-person (P2P) transfers remain free whatever the amount, and that daily transfer limits are risk controls—not pricing thresholds.
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| Payment or merchant category | When the rule applies | MDR stated by the Ministry | Who bears it under the framework? |
|---|---|---|---|
| P2P: one person paying another | Any amount | Zero | No MDR for the sender or recipient |
| P2M: a payment to a merchant | Transaction up to ₹2,000 | Zero | No MDR for the customer |
| Qualifying small merchant in the P2PM category | Merchant receives up to ₹1 lakh per month through UPI QR | Zero on all transactions | No MDR for the customer |
| Other P2M transactions | Above ₹2,000 | 0.4%; transactions of ₹75,000 and above are capped at ₹300 each | Merchant, not customer |
| Specified essential or thin-margin sectors: railways, telecommunications, insurance, fuel and agricultural inputs | Above ₹2,000 | Flat ₹5 per transaction | Merchant, not customer |
| Capital markets: mutual funds, securities, stockbrokers and dealers | As described for these payment categories | 0.02%, capped at ₹300 | Merchant, not customer |
For the standard 0.4% category, the cap means that the MDR cannot exceed ₹300 on a transaction of ₹75,000 or more. The Ministry’s summary names the special sectors and rates, but a merchant should check the applicable National Payments Corporation of India (NPCI) circular and notification for the exact category and implementation details before relying on a sector classification.
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The Ministry says UPI app providers may not impose platform fees or hidden charges under this framework, and that MDR must not be passed on to customers. It describes MDR as “neither a tax nor a charge collected by the Government or NPCI.” That is the government’s stated policy; a customer who sees a separate payment surcharge can ask the merchant to explain it and raise the issue with their bank or payment provider.
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Who pays for UPI if a user is not charged?
A zero price to the user does not remove the costs of operating payment systems. Banks and other payment providers have operating and investment costs; the sources cited by the government and the Reserve Bank of India (RBI) do not establish a definitive per-transaction cost for UPI or a complete annual cost for each participant. The practical distinction is between who uses the service, who receives a payment, and how system participants recover their costs.
The earlier model: zero MDR plus public incentives
In 2020, the government made MDR zero for UPI and RuPay debit-card transactions to encourage digital payments. It subsequently supported parts of the ecosystem through incentive schemes. For its FY2024–25 scheme, announced in 2025, the government described an estimated outlay of ₹1,500 crore for low-value BHIM-UPI P2M transactions up to ₹2,000, aimed at small merchants. That figure is an approved estimated outlay, not a reported actual payout. The scheme says funds are paid to acquiring banks and shared with issuer banks, payment-service-provider banks and app providers.
Figures published by the Government of India and the Prime Minister’s Office in 2025 put incentive payouts at ₹1,389 crore for FY2021–22, ₹2,210 crore for FY2022–23 and ₹3,631 crore for FY2023–24. Separately, a 2025 Lok Sabha answer reported approximately ₹8,730 crore in total incentive support for FY2021–22 through FY2024–25. These are different measures: the cumulative figure covers four fiscal years, while the listed annual payout series ends at FY2023–24 and the FY2024–25 scheme figure is an estimate. The published figures do not establish the realized FY2024–25 payout.
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Repair common Windows errors and clear accumulated junk for a smoother, more stable PC - no reinstall needed.Free scan · no reinstallThe current model: some merchant-side MDR
The September 2026 framework retains zero-MDR treatment for P2P payments and specified merchant transactions, while allowing category-specific MDR on some larger P2M payments. The Ministry says 5% of MDR collections will go to a dedicated fund for small-merchant UPI adoption. That makes the approach a mix of protections for users and small merchants, selective merchant-side revenue, and targeted support; the available figures do not establish how much MDR the framework will collect or how much it will cover system-wide costs.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Why is the policy a trade-off?
Keeping payments free can help people and merchants adopt digital payments. But if providers cannot recover enough to maintain and improve the service, investment may suffer. The RBI’s general analysis of payment-system cost regulation captures both sides: “High costs will discourage consumers / merchants from shifting to digital payments, while low costs may not be remunerative and would discourage investments.” This is a general policy principle, not a UPI-specific cost audit or proof that the 2026 rates are optimal.
The scale of UPI helps explain why the funding question matters. In figures reported by the Government of India in 2026, UPI accounted for 81% of India’s retail digital payment transactions in FY2024–25. Across all payment modes—not UPI alone—India recorded 22,167.90 crore retail digital transactions worth ₹849.12 lakh crore that fiscal year. Those totals describe usage, not the cost of providing UPI or the amount of MDR required to sustain it.
What changed from the government’s 2025 position?
A Lok Sabha answer on 18 August 2025 said there was then no proposal to impose transaction charges on UPI. That answer described the position at the time; it does not describe the later framework announced by the Ministry of Finance on 15 September 2026. The 2026 announcement introduced qualifying merchant-side MDR while retaining zero-MDR categories. Reading the statements with their dates resolves the apparent contradiction.
The Ministry estimates that about 4% of P2M transactions will attract MDR and about 96% will remain unaffected. These are official estimates; the announcement does not provide an independent audit or detailed data table behind the percentages. They should not be treated as independently verified transaction counts or as a guarantee that every merchant will fall into a particular category.
Quick Recap
What merchants should check before accepting a quoted fee
- Identify whether the payment is P2P or P2M, and whether it is within the ₹2,000 threshold.
- If relying on the small-merchant exemption, confirm that the merchant qualifies under P2PM and receives no more than ₹1 lakh per month through UPI QR.
- For a payment above ₹2,000, confirm the merchant’s applicable sector and category rather than assuming the standard 0.4% rate applies.
- Ask the acquiring bank or payment provider for the current NPCI circular, the 14 September 2026 notification cited by the Ministry, and any applicable implementation details. Do not infer merchant eligibility or provider arrangements from a summary alone.
- Separate an MDR charged within the merchant payment ecosystem from any amount separately requested from a customer; under the Ministry’s framework, MDR must not be passed on to customers.
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