The Centre has notified a new fee on UPI payments above Rs 2,000. The Merchant Discount Rate, or MDR, will kick in from October 15, 2026. It ends nearly six years of a completely free Unified Payments Interface system for merchants. The move has triggered a sharp political and public debate over why India’s most used digital payment method now needs a price tag.
What is UPI and why does this news matter?
UPI, or Unified Payments Interface, is India’s real time payment system. It lets users transfer money instantly using a mobile number or UPI ID. Since its 2016 launch, UPI has become the backbone of India’s digital economy. In August 2026 alone, UPI processed 24.51 billion transactions worth nearly Rs 29.82 lakh crore, according to NPCI data. Until now, both customers and merchants paid nothing to use it. That is about to change for a small slice of transactions.
What exactly is changing on UPI from October 15?
The government has approved a new MDR framework for UPI merchant payments. Person to merchant, or P2M, transactions above Rs 2,000 will attract a 0.4 percent fee. This fee is capped at Rs 300 for transactions of Rs 75,000 or more. So a Rs 1 lakh payment will still only cost Rs 300 in MDR, not Rs 400.
A few categories get special treatment:
- Railway tickets, fuel, telecom bills and insurance premiums: A flat Rs 5 fee per transaction above Rs 2,000, regardless of the amount.
- Mutual funds, stock broking and capital market payments: A lower 0.02 percent MDR, capped at Rs 300.
- Small merchants under the P2PM category, receiving up to Rs 1 lakh a month, continue to enjoy zero MDR.
- Person to person transfers, which make up 37 percent of UPI’s volume and 70 percent of its value, remain completely free.
- Transactions of Rs 2,000 or below, which cover more than 95 percent of all merchant payments, stay untouched.
Who has to pay the new UPI charge?
This is the most important clarification from the government. The Finance Ministry has been explicit that customers will not bear this cost directly. In an official statement, the ministry said, “MDR is a charge within the merchant payment ecosystem.” It added that it is not a charge on customers making UPI payments.
Banks have also been instructed to ensure merchants do not pass the MDR on to shoppers through higher prices at the point of sale. A government notification dated September 14 further specified that no bank or app can charge users for UPI transactions up to Rs 2,000, or for any RuPay debit card use within that limit.
How is the UPI fee split among banks and apps?
The 0.4 percent MDR paid by a merchant does not go to the government. It is distributed within the payments ecosystem. Here is how it breaks down for a Rs 100 eligible transaction:
| Recipient | Share of MDR |
| Issuing (remitter) bank | 0.28 percent |
| UPI app provider (TPAP) | 0.08 percent |
| Acquiring bank | 0.04 percent |
| Total merchant fee | 0.4 percent |
Five percent of total MDR collections will also go into a dedicated fund. This fund is meant to widen UPI acceptance among small merchants in smaller towns.
Even at 0.4 percent, UPI’s new fee remains far cheaper than other digital payment modes. Debit card MDR can go up to 0.9 percent, while credit card MDR typically ranges between 1.5 and 2.5 percent.
Why is the government charging for UPI now?
For years, the government insisted UPI would stay free. As recently as June 2025, the Finance Ministry called reports of an MDR “completely false, baseless and misleading.” So what changed?
The core argument is sustainability. Running a payment system at UPI’s scale is expensive. It requires spending on servers, fraud prevention, cybersecurity and banking technology. Industry estimates put the annual cost of running UPI operations at around Rs 20,000 crore. Banks and fintech companies have long argued that a zero MDR regime, in place since January 2020, is not commercially viable in the long run.
Vishwas Patel, chairman of the Payments Council of India, told Business Standard that the new fee is “expected to further sustain the growth of UPI” rather than create profit for companies. He said it would help fund investments in cybersecurity and technology infrastructure that keep the payments system robust.
Parliament had already laid the legal ground for this shift. Earlier in August 2026, the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, amending the Payment and Settlement Systems Act, 2007. This gave the Centre the legal room to revise the zero MDR policy through a future notification, which it has now done.
What do critics say about the UPI merchant fee?
The announcement has drawn a sharp political reaction. Congress leader and Leader of Opposition in the Lok Sabha, Rahul Gandhi, called it a “Modi tax.” In a post on X, he said transactions above Rs 2,000 make up only 5 percent of volume but nearly 65 percent of UPI’s total transaction value. He alleged the decision reflected “Compromised PM Modi… once again surrendering to American pressure.”
Congress president Mallikarjun Kharge also criticised the move, saying the government’s policies had now reached UPI. Congress general secretary Jairam Ramesh accused the government of reversing an earlier position, pointing to statements made in August that no MDR decision had been taken.
The Bharatiya Janata Party rejected these claims. It said the Congress was spreading “fake news,” reiterating that the government had made clear MDR would not be levied on consumers.
BharatPe co-founder Ashneer Grover also weighed in, calling the levy “a regressive step” when the possibility first surfaced in August. More recently, he argued the fee amounted to tax collection, questioning why a system generating no losses for banks or NPCI needed a new charge. He noted that who formally pays a fee and who ultimately bears its cost can be two different questions, since merchants may eventually build the cost into prices.
Sources within the payments industry have stressed that the fee is not a tax, since none of the proceeds go to the government. The money stays within the banks, UPI apps and payment service providers that run the system.
Will UPI charges affect ordinary users?
For most people, daily UPI habits will not change. Grocery runs, small shop payments, chai stalls and most everyday spends fall under Rs 2,000 and remain completely free. Sending money to friends and family also stays free, with no monthly caps or transaction limits.
The impact will mainly be felt by:
- Merchants receiving large ticket payments above Rs 2,000
- Businesses in categories like railways, fuel and telecom, who face a flat Rs 5 fee
- Retailers and platforms that may choose to adjust pricing to offset the new cost
NPCI has said UPI users will continue to enjoy unlimited free transactions with no volume restrictions or tiered caps within the exempted categories.
What’s next for UPI users and merchants?
Banks, payment aggregators and fintech platforms now have until October 15 to update billing systems. Existing UPI QR codes and soundboxes will keep working without any changes needed from merchants. NPCI has clarified that shops do not need to re-register or replace hardware.
The bigger question is whether merchants, especially in retail and e-commerce, will quietly build the new cost into product prices. The government’s position is that they should not, but enforcement will be closely watched in the coming months. Payments industry bodies have welcomed the move as necessary for UPI’s long term health, while opposition parties continue to press the government on transparency around the decision.
For now, the UPI charge remains narrowly targeted. It touches a small share of transactions while keeping the system free for the vast majority of India’s users.