UPI Ends Free Era: 0.4% Fee on Merchant Payments Above ₹2,000 From October 15

India’s digital payment system is about to change. The National Payments Corporation of India (NPCI) announced on September 15 that a 0.4% merchant discount rate will apply to UPI payments above ₹2,000 starting October 15, 2026. This ends six years of completely free UPI transactions for merchants. Person-to-person transfers and 95% of merchant transactions under ₹2,000 remain free, protecting everyday users.

Who pays the new fee and how much

Merchants receiving UPI payments above ₹2,000 will pay 0.4% to banks and payment processors. For a ₹3,000 transaction, the fee is ₹12. The charge caps at ₹300 per transaction for payments of ₹75,000 and above. Railways, telecom, insurance, fuel, and agriculture inputs pay a flat ₹5 per transaction instead. Small merchants earning up to ₹1 lakh monthly through QR codes pay zero MDR on all transactions.

What stays free under the new rules

Person-to-person UPI transfers remain completely free, regardless of amount. These transfers make up 37% of UPI volume and 70% of value. All merchant transactions under ₹2,000 stay free. The government advised banks to prevent merchants from passing fees to customers for UPI payments. This protects the 95% of UPI merchant transactions that fall below ₹2,000.

Why NPCI introduced the fee now

A 22-member panel including the Indian Banks’ Association and Payments Council of India decided the charge was needed for ecosystem sustainability. The MDR will support long-term ecosystem sustainability while keeping UPI accessible for everyday transactions. Banks and payment service providers have until October 15 to update software systems. NPCI also proposed a dedicated fund to expand UPI acceptance among small merchants in Tier-3 and smaller markets.

Timeline and implementation

The new framework takes effect October 15, 2026, giving acquiring banks, payment aggregators, fintech apps, and corporate platforms nearly one month to prepare. Merchants and consumers can continue using UPI without disruption. The government said the balanced design ensures high-frequency retail transactions remain unaffected while large commercial transactions contribute to platform resilience.

Final Thoughts

UPI loses its free status for high-value merchant payments, but everyday users and small vendors are shielded. With 95% of transactions staying free and P2P transfers untouched, the fee targets only large commercial flows while funding long-term platform security.

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The content shared by Meyka AI PTY LTD is solely for research and informational purposes.  Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.