UPI payments in India are set to undergo a major change from October 15, when a new Merchant Discount Rate (MDR) will be introduced on certain person-to-merchant transactions above Rs 2,000.
The new framework has raised questions among consumers about whether they will have to pay extra when making UPI payments at shops, restaurants and other businesses. However, the charges are designed to be paid by merchants, and banks have been advised to ensure that the cost is not passed on to customers.
1. Will customers have to pay a UPI charge?
No. The new MDR is a charge on eligible merchants and is not meant to be collected directly from consumers. The Finance Ministry has advised banks to ensure that merchants do not pass the MDR cost on to customers.
2. What happens to UPI payments up to Rs 2,000?
UPI payments to merchants of up to Rs 2,000 will continue to remain free under the new framework. Person-to-person UPI transfers will also remain free, irrespective of the transaction amount.
3. How much will merchants pay on payments above Rs 2,000?
For eligible person-to-merchant transactions above Rs 2,000, merchants will pay an MDR of 0.4 per cent of the transaction value. The charge will be capped at Rs 300 per transaction for payments of Rs 75,000 or more.
For example, a Rs 3,000 UPI payment would attract an MDR of Rs 12, while a Rs 50,000 payment would result in an MDR of Rs 200 for the merchant.
4. Can a shopkeeper legally add the UPI charge to your bill?
The new framework does not permit banks and payment-system participants to transfer the MDR to consumers. Banks have specifically been advised to ensure merchants do not pass the charge on to customers. Therefore, consumers are not supposed to be charged an additional UPI fee simply because they choose to pay digitally.
5. Are small shopkeepers exempt?
Yes. Small merchants receiving up to Rs 1 lakh per month through UPI QR-code payments will continue to operate under zero MDR. UPI payments through QR codes in rural and semi-urban locations are also exempt under the framework.
6. Are there special charges for some sectors?
Yes. Certain categories, including railways, fuel, telecom, insurance, utilities, agricultural inputs, credit-card payments and tax payments, will have a flat MDR of Rs 5 on applicable transactions instead of the standard 0.4 per cent structure.
7. Why is UPI MDR being introduced now?
The new framework is intended to support continued investment in UPI infrastructure, cybersecurity, fraud prevention, technology and service reliability. The move comes after years in which UPI merchant payments operated without MDR.
UPI has become one of India's most widely used digital payment systems, processing 24 billion transactions worth about $311 billion in August 2026, according to Reuters.
The key takeaway for consumers is that UPI itself is not becoming a paid service for users. From October 15, the new charge will primarily affect eligible merchants receiving payments above Rs 2,000, while consumers are not supposed to bear the MDR directly.
