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Short answer: Under the Ministry of Finance framework announced on September 15, 2026, person-to-person (P2P) UPI transfers remain free for every amount. Person-to-merchant (P2M) payments up to ₹2,000 remain free of merchant discount rate (MDR). A limited set of specified merchant payments above ₹2,000 can attract MDR: generally 0.4%, capped at ₹300 for transactions of ₹75,000 or more; ₹5 in listed essential sectors; and 0.02%, capped at ₹300, for listed capital-market payments. Qualifying small P2M merchants receiving up to ₹1 lakh per month through UPI QR codes retain zero MDR on all transactions.
The fee is described as an internal charge shared by banks, payment service providers and UPI application providers, not a fee that customers should pay. The Ministry advised banks to prevent merchants from passing MDR to customers. The official material records a September 14 government notification and a September 15 NPCI circular, but does not clearly establish the date on which collection starts. Merchants should confirm implementation with their acquiring bank or the full NPCI circular.
What UPI merchant fees are called
Merchant discount rate (MDR) is the fee associated with accepting a digital payment. In a UPI transaction, it is handled inside the merchant-payment ecosystem rather than being presented as a government tax. The Ministry of Finance says the participating banks, payment service providers and UPI application providers share this charge according to the applicable arrangements.
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1Clear out junk files and repair common Windows errors2Scan for outdated or missing drivers - takes under a minute3Repair Windows errors before they cause bigger problemsThe Ministry’s wording is explicit: “MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments.” That distinction matters because a merchant’s MDR liability and a customer-facing surcharge are separate questions. A merchant may have an MDR obligation under its category, while the customer should still be able to pay the displayed price without an added UPI fee under this framework.
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The rules below describe the Ministry’s September 15, 2026 summary for India. Merchant category coding, settlement details and edge cases can depend on the acquiring bank and the NPCI implementation circular.
Current UPI fee rules in India
The transaction type comes first. You cannot determine the rate from the amount alone because the framework also distinguishes merchant category and, for some small businesses, monthly receipts.
| Transaction or merchant category | Stated MDR treatment | Important qualification |
|---|---|---|
| Person-to-person (P2P), any amount | Free | The Ministry says individuals cannot be charged a transaction, platform or other fee for sending or receiving UPI money. |
| Person-to-merchant (P2M) payment up to ₹2,000 | Zero MDR | This is the general low-value merchant rule in the September 2026 summary. |
| Specified P2M payment above ₹2,000 | 0.4%; capped at ₹300 when the transaction is ₹75,000 or more | “Specified” matters; do not apply 0.4% automatically to every merchant or every category. |
| Qualifying payments above ₹2,000 in railways, telecommunications, insurance, fuel and agricultural inputs | Flat ₹5 per transaction | The sector must be classified as one of the listed categories. |
| Mutual funds, securities, stockbrokers and dealers | 0.02%; capped at ₹300 | These are the listed capital-market categories. |
| Small P2PM merchant receiving up to ₹1 lakh per month through UPI QR | Zero MDR on all transactions | The P2PM classification and monthly receipt threshold both matter. |
The Ministry estimates that about 4% of P2M transactions will be affected and about 96% will remain unaffected. Those percentages are the Ministry’s estimate based on its data analysis, not an independently audited count.
Who pays UPI MDR?
Under the policy description, MDR is borne within the merchant-payment ecosystem. The merchant’s acquiring bank and other payment participants account for the charge under their operating arrangements. The Ministry has advised banks to ensure that merchants do not pass MDR to customers.
This does not mean every checkout screen will look identical. A merchant’s agreement may show a settlement deduction, a separate statement line or another accounting treatment. The practical point is that the official framework does not authorize a UPI surcharge to the person paying. If a shop adds a “UPI charge,” ask for the reason and request the acquiring bank or payment provider’s written policy before accepting that it is an official customer fee.
MDR is also not described as money collected by the government or NPCI. It is a payment-industry charge distributed among participating providers. That is why a customer can have a free P2P transfer even though several regulated entities may be involved in routing and settling it.
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P2P and P2M are different transactions
Person-to-person transfers
P2P means one individual sends money to another individual. The September 15, 2026 release states that all P2P UPI transactions remain completely free, irrespective of the amount transferred. For example, sending ₹500, ₹2,500 or ₹2,00,000 to another person does not create an MDR charge for either individual under this rule.
Person-to-merchant payments
P2M means the payment is made to a business or other classified merchant, commonly by scanning a business QR code or paying a merchant UPI address. For these transactions, the amount threshold, merchant category and qualifying status can change the MDR treatment. A payment of ₹2,001 to a merchant is therefore not governed by the same blanket rule as a ₹2,001 transfer to a friend.
Checking the recipient’s label in your banking or UPI app can help, but the definitive classification is held by the acquiring and payment systems. If a business believes it has been placed in the wrong category, it should ask its acquiring bank to review the merchant category and P2PM status.
When the 0.4% rate applies
The general rate stated by the Ministry is 0.4% for specified P2M payments above ₹2,000. The rate is subject to a cap of ₹300 per transaction when the transaction value is ₹75,000 or higher.
For a ₹10,000 qualifying transaction, 0.4% is ₹40. For a ₹50,000 qualifying transaction, it is ₹200. At ₹75,000, 0.4% would be ₹300, which is also the stated cap. For a ₹100,000 transaction, the uncapped calculation would be ₹400, but the stated cap limits the MDR to ₹300. These examples describe the announced rate, not a guarantee that every merchant above ₹2,000 is in the general category.
The category check must come before the arithmetic. A payment in fuel, telecommunications, insurance, railways or agricultural inputs may use the flat ₹5 rule, while a qualifying securities-related payment may use 0.02%. A qualifying small P2PM merchant may owe zero MDR instead.
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Special sector rates
Railways, telecommunications, insurance, fuel and agricultural inputs
The Ministry lists a flat ₹5 per transaction for qualifying payments above ₹2,000 in railways, telecommunications, insurance, fuel and agricultural inputs. “Flat” means the stated MDR does not increase with the transaction value within that listed treatment. The payment still needs to be correctly identified in one of those sectors.
Mutual funds, securities, stockbrokers and dealers
Payments relating to mutual funds, securities, stockbrokers and dealers are listed at 0.02%, with a ₹300 cap. At ₹20,000, 0.02% is ₹4; at ₹100,000, it is ₹20. The cap would become relevant only at a much higher value because 0.02% reaches ₹300 at ₹1.5 million. The merchant’s category and the payment’s purpose must match the listed capital-market treatment.
How the small-merchant exemption works
The release uses a specific definition rather than the everyday meaning of “small shop.” A merchant must be in the P2PM category, receive payments through a UPI QR code and stay at or below ₹1 lakh in monthly UPI receipts. The Ministry says such a qualifying merchant retains zero MDR on all transactions.
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Merchants should keep monthly UPI settlement records, confirm that the QR is registered to the correct business category and review any MDR line on bank statements. If the bank’s calculation conflicts with the stated exemption, request a written reconciliation showing the category, receipt period and rule used.
Is UPI still free above ₹2,000?
For a personal transfer, yes: P2P remains free regardless of amount. For a merchant payment, there is no longer a single “all UPI is free” answer in the September 2026 framework. P2M payments up to ₹2,000 remain free of MDR, while specified payments above ₹2,000 can fall under the general, sector-specific or small-merchant rules.
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The amount is therefore a trigger for checking the rule, not a complete answer. Two payments of ₹10,000 can have different MDR treatment if one is made to a qualifying P2PM merchant and the other is made to a merchant in a specified category.
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The Ministry’s summary says the government issued a notification on September 14, 2026 and NPCI issued a detailed circular on September 15, 2026. The material does not clearly state the commencement date on which the rates begin applying in live settlement.
Do not treat either publication date as an automatic effective date. Merchants should inspect the complete NPCI circular or obtain implementation instructions from their acquiring bank. Ask specifically for the effective date, merchant-category mapping, treatment of monthly P2PM receipts, settlement reporting and the process for correcting a misclassified transaction. Customers should not rely on social-media posts that claim a start date without citing the operative circular.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How the 2026 framework differs from earlier rules
Earlier government policy described zero MDR for UPI and RuPay debit transactions from January 2020. A March 2025 announcement then described an incentive scheme for financial year 2024–25, running from April 1, 2024 through March 31, 2025. That scheme provided a 0.15% incentive on qualifying small-merchant transactions up to ₹2,000 and zero MDR without incentive for other listed categories.
The 0.15% figure was an incentive paid under that past scheme, not a current MDR rate for merchants. It should not be used to calculate a 2026 settlement deduction.
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A Ministry statement dated August 8, 2026 said any MDR would be future, limited and subject to a later committee decision. The later September 15 statement describes the framework and supplies the rates and categories above. The later release is the relevant summary for the current policy, while the commencement date still requires confirmation from the operative instructions.
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For legal background, a Lok Sabha answer published August 18, 2025 explained that section 10A of the Payment and Settlement Systems Act, 2007 prohibited charges on payers or beneficiaries for electronic modes prescribed under section 269SU of the Income-tax Act. UPI and RuPay debit cards had been notified as such modes. The same answer recorded that an NPCI circular dated August 30, 2019 had permitted acquiring banks to charge MDR at 0.30% before the subsequent zero-MDR policy. Those historical figures do not replace the September 2026 schedule.
Worked examples for merchants and customers
Example 1: ₹1,800 at an ordinary shop
This is a P2M payment at or below ₹2,000, so the stated treatment is zero MDR. The customer should not see a UPI surcharge under the framework.
Example 2: ₹10,000 at a specified ordinary merchant
If the merchant is in a specified P2M category covered by the general rule, 0.4% produces ₹40. The charge is handled within the merchant ecosystem, not added to the customer’s bill.
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Example 3: ₹100,000 in a general category
The uncapped 0.4% calculation is ₹400, but the stated cap reduces MDR to ₹300 for a transaction of ₹75,000 or more.
Example 4: ₹12,000 for fuel
If the transaction is correctly classified under the listed fuel category, the stated special treatment is ₹5 rather than 0.4% of ₹12,000.
Example 5: ₹20,000 through a qualifying small P2PM QR merchant
If the merchant remains within the ₹1 lakh monthly receipt threshold and meets the P2PM condition, the stated treatment is zero MDR even though the transaction exceeds ₹2,000.
Merchant checklist before relying on a fee calculation
- Identify the payment type: confirm whether the transaction is P2P or P2M.
- Check the amount: payments up to ₹2,000 have zero MDR under the general P2M rule.
- Verify the merchant category: determine whether the payment is in the general, ₹5 essential-sector or 0.02% capital-market group.
- Check P2PM status: confirm whether the business is classified as P2PM and whether monthly QR receipts are at or below ₹1 lakh.
- Apply the correct cap: use the ₹300 cap where the applicable rule states it; do not apply the general cap to a category that has a different treatment.
- Confirm timing: obtain the effective date and operating instructions from the acquiring bank or complete NPCI circular.
- Review settlement records: compare the bank statement’s MDR line with the category, transaction value and monthly receipt report.
- Do not add a customer surcharge: ask the bank for remediation if the payment provider’s instruction conflicts with the Ministry’s customer-protection guidance.
What customers should do if a UPI fee appears
Save the receipt, note the merchant name and transaction ID, and ask whether the amount is a product or service charge or a separate UPI surcharge. A legitimate change in the purchase price is different from adding MDR solely because the customer chose UPI. Raise a disputed surcharge with the merchant first, then with the acquiring bank or UPI app’s support channel if it is not corrected.
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The practical answer
Customers do not pay an official UPI transaction fee under the announced framework. P2P is free at every amount, and ordinary P2M payments up to ₹2,000 have zero MDR. Above ₹2,000, only specified merchant payments are covered, with rates determined by category, caps and the P2PM small-merchant condition. Because the official summary does not establish the start date or every implementation detail, merchants should verify the operative NPCI and acquiring-bank instructions before changing prices or accounting systems.
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