New UPI MDR Framework Explained: What to Know About P2P Transfers and Standard P2M

The government has clarified that the new UPI framework won't mean any charge for people using UPI. This clarification came on 15th September, 2026, after confusion spread about whether individuals would now have to pay for making UPI payments. Payments between two individuals will stay completely free, no matter the amount transferred, and payments to merchants up to ₹2,000 will also remain free. From October 15, merchants accepting UPI payments above ₹2,000 will pay a fee under the new rules, but this cost falls on the merchant, not the customer.

India Sets 0.4% Fee on UPI Merchant Payments Above ₹2,000

Under the new framework, a Merchant Discount Rate (MDR) of 0.4% will apply to merchant payments that cross ₹2,000. This isn't a government tax or an NPCI charge; it gets shared among banks, payment service providers, and UPI app companies, helping fund the infrastructure that keeps UPI running and expanding across the country.

5 Things That Remain Free Under New UPI Rules 2026

• Sending money to anyone: free, any amount
• Receiving money: free, always
• Merchant payments up to ₹2,000: free
• Small merchants earning under ₹1 lakh a month via UPI: zero MDR
• Regular UPI usage: no monthly cap, no hidden fee

UPI Continues to Remain Free for Peer-to-Peer Transactions

Nothing changes for person-to-person transfers. Whether you're sending ₹100 to a friend or ₹50,000 to a family member, it stays completely free. This category alone makes up the bulk of UPI's transaction value, so most people won't feel this reform at all.

Merchant Payments Up to ₹2,000

Buying vegetables, paying for a haircut, and grabbing a coffee if the bill is ₹2,000 or under—the payment goes through without any extra charge. Since most day-to-day purchases fall well within this range, this is where the framework has the least impact.

What Happens If the Payment Is Above ₹2,000?

Once a merchant payment crosses ₹2,000, the 0.4% MDR applies, effective from October 15. There's a ceiling too: for transactions of ₹75,000 or more, the charge is capped at ₹300. And crucially, this cost sits with the merchant, not the person paying.

Transactions in Essential Sectors

Sectors like railways, telecom, insurance, fuel, and agricultural inputs get special treatment. Instead of a percentage-based fee, payments above ₹2,000 here attract a flat ₹5 charge, giving businesses in these thin-margin, essential areas cost predictability.

Capital Market Transactions

Mutual fund and stock market payments carry a much smaller MDR of just 0.02%, capped at ₹300, so the framework doesn't discourage retail investors from using UPI for market-related payments.

Customers Will Not Pay MDR

Banks have been directed to make sure merchants don't shift this cost onto buyers. UPI providers are also barred from adding their own platform fees on top.

No Monthly Limit on Free UPI Payments

There's no quota system here; individuals can keep making free UPI transactions as often as they like, with no monthly ceiling.

Most Merchant Transactions Will Remain Unaffected

About 96% of all merchant payments either fall under ₹2,000 or qualify under the small-merchant exemption, meaning the new fee touches only a small fraction of transactions overall.

Support for Small Merchants

A share of the MDR collected — 5% — will go into a dedicated fund to help small merchants and street vendors adopt and continue using UPI.

Does MDR Mean UPI Is No Longer Free?

Not for most people. Individuals and the vast majority of merchant payments remain completely free. The charge applies narrowly, to bigger merchant transactions only, starting October 15, 2026.