UPI Payments Will Be Chargeable From October 15: Who Actually Pays, and How Much? 

The National Payments Corporation of India (NPCI) has issued a detailed FAQ explaining its new Merchant Discount Rate (MDR) rules for selected UPI transactions. The clarification explains which payments will attract MDR and, importantly, which UPI transactions will continue to remain free for consumers. Under the new framework, a 0.4% MDR will apply to certain UPI person-to-merchant (P2M) transactions above ₹2,000. For transactions of ₹75,000 or more, the MDR will be capped at ₹300 per transaction. These rules will come into effect from October 15, 2026.

However, this does not mean consumers will have to pay a UPI fee. Person-to-person (P2P) transfers will also continue to remain free. So, what exactly is changing, and will NRIs using UPI in India have to pay more? Here’s what the new UPI MDR rules mean for NRIs, consumers, merchants, and different types of UPI payments.

What Has Changed in UPI From October 15, 2026?

When Will the New UPI MDR Rules Take Effect?

The new framework became effective on October 15, 2026. Before this date, UPI has been entirely free for both customers and merchants across all transaction types. From this date onward, only specific merchant payments above ₹2,000 move into the new fee structure; nothing changes for transactions that happened before October 15.

Will Customers Be Charged for Making UPI Payments?

No. The charge sits entirely on the merchant’s side, not the customer’s. When you pay for groceries, send money to a friend, or pay your electricity bill through UPI, you will not see any deduction or fee on your end. UPI apps have also been specifically barred from charging customers a platform fee or any other charge for making payments. Whatever gets deducted happens between the merchant and their acquiring bank, after the money has already reached the merchant.

Which UPI Payments Will Attract MDR, and How Much?

What Is the MDR Structure?

How Much MDR Will a Merchant Pay on a ₹3,000 or ₹50,000 UPI Payment?

The math is simple once you apply the 0.4% rate:

• ₹3,000 transaction: 0.4% × ₹3,000 = ₹12
• ₹50,000 transaction: 0.4% × ₹50,000 = ₹200

It’s worth being clear about what these numbers actually mean: this ₹12 or ₹200 is what the merchant pays to their acquiring bank out of the money they’ve received it does not mean the customer is billed an extra ₹12 or ₹200 on top of the ₹3,000 or ₹50,000 they’re paying. The customer’s payment amount stays exactly the same either way.

Will Small Local Vendors Have to Pay MDR?

Most small vendors will not be affected at all. If a vendor is classified as P2PM meaning they receive payments through a UPI QR code directly into their account and their total monthly UPI collections stay within ₹1 lakh every single transaction they receive stays free of MDR, no matter how large an individual payment is. A single customer paying them ₹5,000 or even ₹20,000 in one go does not trigger any charge, because the classification depends on the vendor’s overall monthly volume, not the size of one transaction.

The practical impact only shows up once a vendor’s monthly UPI collections consistently cross ₹1 lakh. At that point, acquiring banks and payment providers reclassify the vendor from P2PM into the standard P2M category, and from then on, the usual 0.4% MDR applies to their payments above ₹2,000. Existing QR codes and payment soundboxes continue to work exactly as before vendors don’t need to replace any hardware because of this change.

What Is P2PM?

P2PM stands for Person-to-Person-Merchant, a category created specifically to protect small vendors from the new charge. It covers small merchants who accept UPI payments through a QR code straight into their personal or current account, provided their total monthly inflow through UPI stays at or under ₹1 lakh. No GST registration is required to qualify for this protection, which makes it accessible to genuinely small vendors  think local kirana stores, roadside stalls, and small service providers  who don’t run large-scale merchant operations.

What Happens If a P2PM Merchant Receives a Payment Above ₹2,000?

Nothing changes for that single transaction. A P2PM merchant receiving one payment of ₹5,000, ₹10,000, or even more still pays zero MDR, as long as their overall monthly UPI collections remain within the ₹1 lakh threshold. The ₹2,000 figure only matters for merchants already classified under the standard P2M category; it has no bearing on a P2PM vendor’s individual transaction sizes. Reclassification only happens if the vendor’s monthly UPI receipts exceed ₹1 lakh for three consecutive months, at which point they move into the regular P2M bracket going forward.

What Is the Proposed Fund for Small Merchants?

Alongside the MDR rollout, a dedicated fund expected to be around ₹700 crore a year is being proposed to support digital-payment infrastructure for smaller merchants, particularly in Tier III to Tier VI towns, the north-eastern states, Jammu and Kashmir, and Ladakh. The idea is to subsidise onboarding and infrastructure costs so that digital payment acceptance keeps expanding in areas where merchant density and banking infrastructure are still developing. The exact operating details of this fund are expected to be finalised in consultation with the Reserve Bank of India over the next few months.

Will NRIs Have to Pay This Fee?

For the vast majority of NRIs using UPI in India, nothing changes. Since MDR is charged to the merchant and not the customer, an NRI using UPI in India through their NRE or NRO-linked account pays nothing extra whether they’re settling a restaurant bill, shopping online, or paying a utility bill. The ₹2,000 threshold is a merchant-classification detail, not something that changes what an NRI customer is billed at checkout.

Peer-to-peer transfers stay completely unaffected as well — if you’re sending money to a parent, sibling, or friend’s account, that remains free regardless of the amount, your residency status, or which account type is linked on either end. The only scenario where an NRI could be indirectly touched by this change is if they run a business in India that accepts UPI payments as a merchant in that case, the same P2M or P2PM rules that apply to any resident merchant would apply to them too, based on their monthly UPI collection volume.

Example: an NRI in Dubai transferring ₹15,000 to their mother’s account in India pays nothing extra, that’s a P2P transfer, permanently free. But if that same NRI owns a small export business in India that collects ₹40,000 from a customer through a UPI QR code as a registered P2M merchant, a 0.4% MDR (₹160) would apply on that receipt, just as it would for any other merchant in that category.

What Stays Free Under the New UPI Rules?

• All person-to-person (P2P) transfers, regardless of amount.
• All merchant payments of ₹2,000 or below.
• P2PM small vendors, as long as monthly UPI collections stay within ₹1 lakh.
• UPI AutoPay transactions.
• Customers, in every scenario the charge never reaches the person making the payment.

Conclusion

The October 15 change is real, but it’s far narrower than the initial confusion suggested. Ordinary UPI users, small vendors, and anyone sending money to family or friends continue exactly as before completely free. The only people who need to actually track this are merchants running larger, regular UPI collections above the ₹2,000 mark, who should check their transaction category with their bank or payment provider before the effective date.