UPI MDR Starts October 15: How Its Cost Compares With Card Payments

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How Will The New UPI MDR Affect Indian Customers?

Personal UPI transfers will remain free, irrespective of the amount. Payments to merchants up to ₹2,000 will also carry zero MDR. An official government update dated 16 September 2026⁠ said around 96% of person-to-merchant transactions would remain unaffected by the new charge.

Small vendors receive additional protection. Merchants accepting up to ₹1 lakh per month through UPI QR codes under the Person-to-Person-Merchant category will retain zero MDR. One payment above ₹2,000 will not automatically trigger the fee for an eligible vendor. The merchant’s account classification and monthly UPI receipts will decide its treatment.

Banks have been advised to stop sellers from adding MDR separately to customer bills. UPI applications cannot introduce platform fees or hidden payment charges under the new framework. Individual users will also face no monthly quota on free transactions.

Why Does NPCI Say UPI Will Remain Cheaper Than Cards?

The Merchant Discount Rate on Select UPI P2M Transactions FAQ, dated 15 September 2026⁠, compares UPI with standard card acceptance rates. It places conventional credit-card MDR between 1.5% and 2.5%. Debit-card MDR can reach 0.9%, while regular bank-account-funded UPI will charge 0.4% above ₹2,000.

NPCI says this difference will keep UPI cheaper for commercial businesses that already accept cards. Merchants should still examine the rates written into their payment agreements. Card costs can change by network, business category and the terms offered by the acquiring bank.

The table below compares the merchant-side MDR. It excludes GST charged on the processing fee.

Illustration: On an eligible ₹10,000 purchase, UPI MDR would be ₹40. A debit-card payment at 0.9% would cost the merchant ₹90. The credit-card cost would fall between ₹150 and ₹250 under the range quoted in the official FAQ.

RuPay debit is a separate exception. The Finance Ministry’s Notification S.O. 5067(E), dated 14 September 2026⁠, retained no-charge protection for RuPay-powered debit-card transactions without giving a monetary ceiling. RuPay debit can therefore cost a merchant less than UPI on a payment above ₹2,000.

Which UPI Payments Will Have Special Rates?

Railway, telecom, insurance, fuel and agricultural-input payments above ₹2,000 will carry a flat ₹5 MDR. The flat rate protects businesses in categories where a percentage charge could rise sharply on a large payment.

Capital-market payments involving mutual funds, securities, stockbrokers and dealers will attract 0.02% MDR, capped at ₹300. UPI AutoPay and automated recurring instructions will not carry the prescribed MDR. Credit cards linked to UPI and pre-approved credit lines will continue under their separate credit-product rules.

GST applies to the MDR amount rather than the full purchase value. NPCI said on 22 September 2026 that eligible GST-registered merchants could claim input tax credit for GST paid on MDR. Businesses unable to claim that credit may bear the tax component.

What Changed Before The October 15 Start?

A LoansJagat⁠ update, last revised on 11 September 2025, recorded the Finance Ministry’s position that individual UPI users would not face transaction charges. That position has not changed. The 2026 framework places the fee within the merchant payment system.

On 8 August 2026, the Finance Ministry issued an official policy statement⁠. It said the amendment to the Payment and Settlement Systems Act, 2007, would enable a threshold-based MDR on a limited group of merchant transactions. The government issued Notification S.O. 5067(E) on 14 September. NPCI released the rate structure on 15 September, exactly 1 month before implementation.

What Are Payment Operators And Retailers Saying?

NPCI Managing Director and CEO Dilip Asbe said in an interview published on 22 September 2026⁠ that the percentage-based charge shields smaller purchases while higher-value commercial transactions contribute towards system costs. Special flat rates protect selected sectors with narrow margins.

Retailers Association of India chief executive Kumar Rajagopalan took a different view. He warned that sellers may consider cash for festival purchases above ₹2,000. Clothing Manufacturers Association of India president Santosh Katariya also referred to pressure on demand and margins. Zerodha chief executive Nithin Kamath questioned the 0.02% capital-market fee when a customer transfers money but completes no trade.

LoansJagat’s assessment is that the direct cost for a household remains ₹0 under the notified rules. Any consumer impact would come from a merchant changing payment preferences or product pricing, not from a fee deducted by a UPI application. Comparing final settlement receipts will help merchants identify the actual cost instead of rejecting all high-value UPI payments.

Conclusion

UPI will remain free for customers and cheaper than conventional cards carrying standard MDR. Most daily merchant payments will also stay outside the charge.

The comparison has one qualification. RuPay debit cards retain zero MDR, while selected bank-account UPI payments above ₹2,000 will carry 0.4% from 15 October 2026. Merchants will need to compare actual settlement costs before choosing between UPI and cards.

Frequently Asked Questions

1. Will Customers Pay MDR On UPI Payments After 15 October 2026?

No. Customers will not pay the notified MDR. The charge applies to eligible merchants receiving selected UPI payments above ₹2,000.

2. Is Every UPI Payment Above ₹2,000 Now Chargeable?

No. P2P transfers remain free, qualifying small merchants retain zero MDR, and several payment categories have separate rates or exemptions.

3. Can A Shopkeeper Add 0.4% To The Customer’s Bill?

The official framework says merchants cannot pass the MDR directly to customers. Banks have been advised to monitor this condition.

4. How Much MDR Applies On A ₹1 Lakh UPI Purchase?

The standard 0.4% calculation produces ₹400, but the notified ₹300 cap applies from ₹75,000 onwards. The merchant would therefore pay ₹300 before GST.

5. Are Credit Cards Linked To UPI Covered By The 0.4% Rate?

No. RuPay credit cards linked to UPI and pre-approved credit lines follow their respective credit-product and merchant-pricing rules.