What changed

On 15 September 2026, NPCI announced that UPI will no longer be free for every merchant. From 15 October 2026, businesses pay a Merchant Discount Rate (MDR) of 0.4% on UPI payments above ₹2,000, capped at ₹300 per payment.

UPI merchant payments have been free since January 2020. NPCI says running the network costs around ₹20,000 crore a year, and that government subsidies were only ever short-term support.

Three things have been widely misunderstood since the announcement, so they are worth stating plainly.

  • Customers pay nothing. MDR is a fee the merchant pays its bank. It is not a tax, and no money goes to the government or NPCI.
  • Sending money to a person stays free. Any amount, to anyone, including transfers between your own accounts.
  • Merchants cannot add it to your bill. NPCI says the price you see is the price you pay, and banks have been told to make sure of it.

Will I be charged for using UPI?

No. If you are paying, not receiving, nothing changes for you.

NPCI’s rules say:

  • UPI apps cannot charge a platform fee or any other charge on a UPI payment.
  • There is no monthly limit or quota on free UPI transactions.
  • Scanning a QR code at a shop is free for the customer, whatever the amount.
  • Your daily UPI limit, usually somewhere between ₹1 lakh and ₹5 lakh, is a security measure, not a fee threshold.

Paying ₹10,000 to a shop does not mean ₹40 is added to your payment. That ₹40 comes out of what the shop receives.

Who actually pays, and how much

The charge falls on the business receiving the money, and it depends on what kind of business it is.

Shops, e-commerce and most businesses: 0.4%

Payments above ₹2,000 carry 0.4%. On ₹5,000 that is ₹20; on ₹50,000, ₹200. The fee stops growing at ₹300, which is reached at ₹75,000, so a ₹1 lakh payment costs ₹300 rather than ₹400.

Railways, telecom, insurance, fuel, utilities and education: flat ₹5

These sectors pay a flat ₹5 per payment above ₹2,000, whatever the amount. NPCI’s reasoning is that they run on thin margins or provide essential services. A ₹3,000 petrol fill and a ₹60,000 insurance premium both cost the business ₹5.

Mutual funds, brokers and securities: 0.02%

Capital market payments carry 0.02%, capped at ₹300 — a twentieth of the standard rate. A ₹50,000 mutual fund purchase costs ₹10. NPCI says the lower rate is meant to keep retail investing on UPI cheap.

Small merchants: nothing

Small vendors in the P2PM category — those receiving up to ₹1 lakh a month through a UPI QR code into their own account — pay zero MDR on every payment, including payments above ₹2,000.

A vendor moves into the regular merchant category only after receiving more than ₹1 lakh a month for three consecutive months. GST registration has nothing to do with it, and no shop needs to change or re-register its QR code.

What else stays free

  • Every payment of ₹2,000 or less, in every category. NPCI says these are more than 95% of merchant payments by volume.
  • AutoPay mandates. Recurring instructions such as utility bills, OTT subscriptions and mutual fund SIPs carry no prescribed MDR.
  • Person-to-person transfers, including self-transfers between your own accounts.

Payments made with a RuPay credit card or a pre-sanctioned credit line on UPI are outside this framework. They follow standard credit card rules, which carry their own charges.

What it costs a business in practice

The number that matters to a business owner is the monthly total, not the fee on one payment. Use the “a month of payments” option in the calculator above.

Three worked examples, using the 0.4% rate:

  • A clothing shop taking 200 payments a month averaging ₹5,000: ₹4,000 a month, or ₹48,000 a year.
  • An electronics dealer taking 40 payments a month averaging ₹40,000: ₹6,400 a month.
  • A petrol pump taking 500 payments a month above ₹2,000: ₹2,500 a month, because fuel pays the flat ₹5.

Only payments above ₹2,000 count. A business whose takings are mostly small payments will barely notice the change; one selling higher-value goods will feel it.

The rate is still well below card fees. Credit cards typically cost 1.5% to 2.5%, and debit cards up to 0.9%. At 0.4%, UPI remains the cheapest way to accept a digital payment.

How the fee is calculated

Formula

Payment of ₹2,000 or less → fee = ₹0

Standard merchant → fee = lower of (0.4% × amount) and ₹300

Railways, telecom, insurance, fuel, utilities, education → fee = ₹5

Mutual funds, brokers, securities → fee = lower of (0.02% × amount) and ₹300

Small merchant (P2PM) or person-to-person → fee = ₹0

Note the cliff at the threshold. A payment of exactly ₹2,000 is free; ₹2,001 costs the merchant ₹8.

Where the money goes

The fee is shared among the participants in the payment chain — banks, payment service providers and UPI apps. NPCI says it will fund infrastructure, cybersecurity, fraud prevention and customer support, and that part of it will go into a fund to expand UPI acceptance among small merchants in smaller towns and rural areas. The details of that fund are to be settled with the RBI within three months.

Whether businesses quietly absorb the cost, as NPCI expects, or start steering larger purchases towards cash and cards, will only become clear after 15 October.

Where to check for updates

These rates are set by the UPI and Services Steering Committee at NPCI and can be revised. For anything about UPI charges, NPCI advises checking official sources: NPCI’s press releases, the RBI, or the Press Information Bureau. Plenty of inaccurate claims about these charges have circulated on social media.

For other Indian finance tools, see our finance calculators, including the Post Office TD calculator and the capital gains tax calculator.