New UPI Rules 2026: What the Latest UPI Charges Mean for Consumers and Merchants

Introduction

Since 2016, UPI has become the most loved payment method for millions of Indians, from buying groceries and paying utility bills to shopping online and sending money to family and friends. With the announcement of new rules around the Merchant Discount Rate (MDR), will that narrative change? That is what we will try to understand in this article.

Table of Contents

• Introduction
• What are the new UPI rules
• Will consumers have to pay UPI charges ?
• What happens to UPI payments below ₹2,000
• What does the new framework mean for merchants
• Will small merchants have to pay MDR
• Will customers have to pay more at shops?
• Are there special MDR rates for some sectors?
• Is ₹2,000 the new UPI transaction limit?
• What about sending money to friends and family?
• What should merchants do before 15 October 2026?
• New UPI rules: What changes from 15 October 2026?
• Conclusion

Introduction

Merchant Discount Rate (MDR), which is a fee paid by businesses for accepting digital payments. MDR applies to Person-to-Merchant (P2M) transactions, where customers pay businesses for goods or services, while Person-to-Person (P2P) transactions, such as sending money to family or friends, involve transfers between individuals. Understanding the distinction between P2M and P2P payments is key to understanding the latest changes to UPI charges.

So, what do the New UPI payment rules mean for you? And what should merchants know about the upcoming UPI transaction charges?

What are the new UPI rules?

The new framework will introduce MDR for specified P2M UPI transactions above ₹2,000. MDR, or Merchant Discount Rate, is a fee associated with accepting a digital payment.

Under the new framework:

• UPI P2P payments will continue to be free.
• P2M transactions up to ₹2,000 will remain free of MDR.
• A 0.4% MDR will apply to specified P2M transactions above ₹2,000.
• For transactions of ₹75,000 or more, MDR will be capped at ₹300 per transaction.
• Eligible small merchants under the P2PM framework will continue to receive zero MDR.
• The new framework is scheduled to come into effect from 15 October 2026.

It is worth mentioning that the ₹2,000 threshold is not a new UPI transaction limit. It is an MDR threshold for specified merchant transactions.

Will consumers have to pay UPI charges?

No. Consumers will not be charged MDR for making UPI payments. If you scan a merchant's QR code and pay through UPI, the MDR is applicable to the merchant. It is not a fee that is directly charged to the customer. P2P transfers, such as sending money to a friend or family member, will also remain free.

Let us understand the new change with an example, suppose you purchase a television for ₹50,000 and pay the merchant using UPI. If the transaction falls under the applicable P2M category, the merchant-side MDR may apply. However, you do not pay an additional 0.4% UPI transaction charge simply because your payment is above ₹2,000.

So, when you hear the term UPI charges, don’t get triggered, as you (the customer) will not be paying any charges.

What happens to UPI payments below ₹2,000?

UPI payments up to ₹2,000 for P2M transactions will remain free of MDR under the new framework.

This means everyday payments such as paying at a local shop, buying food, paying for a small purchase or making other routine transactions will generally continue without a merchant-side MDR under this threshold. As per NPCI, transactions up to ₹2,000 account for more than 95% of P2M UPI transactions.

The threshold should therefore not be interpreted as a new UPI limit on how much consumers can spend using UPI.

What does the new framework mean for merchants?

The impact is more relevant for merchants than for consumers.

Merchants accepting specified P2M UPI payments above ₹2,000 may have to bear an MDR of 0.4% from 15 October 2026. For transactions of ₹75,000 or more, the MDR is capped at ₹300 per transaction.

For example:

*Illustrative calculation for transactions covered by the standard 0.4% MDR. Actual applicability depends on the merchant category and applicable framework.

For merchants, the change means that the cost of accepting certain high-value UPI payments will need to be factored into payment-processing expenses.

Will small merchants have to pay MDR?

Not necessarily. The new framework allows eligible small merchants under the P2PM (Person-to-Person-Merchant) category to continue receiving zero MDR. It covers small merchants receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category.

This is particularly relevant for small retailers, neighbourhood shops and street vendors that rely heavily on UPI for everyday collections.

Will customers have to pay more at shops?

The new rule has not clearly indicated a mandatory UPI surcharge for customers.

Until now, MDR has been a merchant-side payment-processing charge. Banks have advised merchants not to pass this cost on to customers, and UPI application providers cannot impose a platform fee or hidden charge for UPI payments under the framework described in the current guidance.

If a merchant separately asks a customer to pay the additional amount specifically for using UPI, customers can check the applicable terms and raise the matter with the relevant bank, payment provider or merchant-acquiring channel.

Are there special MDR rates for some sectors?

Yes. Certain essential and thin-margin sectors have been assigned special treatment.

According to the reported framework, transactions above ₹2,000 in sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5 rather than the standard 0.4% rate.

Is ₹2,000 the new UPI transaction limit?

No. This is one of the most important points to understand about the New UPI limit.

₹2,000 is the threshold for MDR on specified P2M transactions. It does not mean that UPI users will be unable to make payments above ₹2,000 or that payments above this amount will automatically be charged to consumers.

Banks and NPCI may prescribe transaction limits based on factors such as the type of transaction, merchant category, merchant account and security requirements.

What about sending money to friends and family?

There is no change in ordinary P2P UPI payments under the new MDR framework.

If you use UPI to:

• Send money to a family member
• Split a restaurant bill with friends
• Transfer money to another personal account
• Send money to another individual

the new MDR framework does not introduce a consumer transaction charge. P2P transactions remain outside the MDR framework.

What should merchants do before 15 October 2026?

Merchants accepting UPI payments should understand how their acquiring bank current account or payment service provider will implement the new MDR framework.

Businesses may want to:

• Check their merchant category and MDR applicability.
• Understand how the charges will appear in settlement statements.
• Review agreements with their acquiring bank or payment aggregator.
• Check whether they qualify for an applicable small-merchant exemption.
• Ensure their current account can record the revised payment-processing costs.
• Avoid adding an unauthorised UPI surcharge to customer bills.

New UPI rules: What changes from 15 October 2026?

The framework is scheduled to take effect on 15 October 2026.

Conclusion

The latest UPI news may sound like UPI is getting taxed, but the practical impact for consumers differs from that for merchants, and how the system evolves will become clear over time.

Till now, the new framework introduces MDR for specified merchant transactions above ₹2,000, with a standard rate of 0.4% and a ₹300 cap for transactions of ₹75,000 or more.

For consumers: the ₹2,000 threshold is not a new UPI transaction limit and does not mean you will have to pay a UPI fee when making a high-value payment.

For merchants: the focus should be on understanding their merchant category, applicable MDR and how the charges will affect payment settlements from 15 October 2026.