India’s latest UPI framework keeps everyday transfers free while changing how some larger merchant payments are funded. The Ministry of Finance said on September 15, 2026, that person-to-person UPI transactions will remain free regardless of amount. Reuters reporting carried by MarketScreener said the new merchant discount rate will begin on October 15.
The framework applies a 0.4 percent merchant discount rate to specified person-to-merchant transactions above ₹2,000. The fee is charged within the payment ecosystem rather than to the customer, according to the ministry. Reuters reported that the change cannot be passed on to consumers and is intended to support banks and payment firms that operate the network.
The government says the change is narrower than a general UPI charge. Payments to merchants up to ₹2,000 remain outside the MDR framework. The ministry also says small merchants receiving up to ₹1 lakh a month through UPI QR codes under the P2PM category will continue to receive zero MDR on all transactions. It estimates that about 96 percent of merchant transactions will remain unaffected.
Some sectors have a separate structure. Payments above ₹2,000 in railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5, the ministry said. Capital-market payments involving mutual funds, securities, stockbrokers and dealers will use a 0.02 percent rate with a cap of ₹300. For other covered transactions, the ministry says the MDR is capped at ₹300 when the payment reaches ₹75,000 or more.
The ministry also says five percent of the total MDR collected will go to a dedicated fund for small-merchant adoption. It says the money will support wider UPI acceptance and investment in banks, payment-service providers and payment applications. Reuters reported that the fee distribution is expected to support infrastructure resilience, innovation, cybersecurity and customer service across the network.
That funding question matters because UPI has become a very large payments system. Reuters reported that the network processed 24 billion transactions worth $311 billion in August. The ministry’s release says person-to-person transactions represent about 70 percent of total transaction value, and those payments remain outside the MDR framework.
The announcement therefore changes the revenue model for a limited group of merchant transactions, not the basic consumer promise of sending money through UPI without a transaction charge. It also gives payment companies a new source of ecosystem funding while keeping small shops and low-value payments protected. The rules take effect on the stated October 15 date, so banks, apps and merchants now have time to update their systems and customer information.
