India’s UPI payment system is set for an important change from October 15, 2026, when a new Merchant Discount Rate (MDR) framework will apply to selected person-to-merchant (P2M) transactions above ₹2,000. However, the change does not mean that consumers will start paying a fee every time they use UPI. The government has clarified that individuals will continue to use UPI without transaction, platform or hidden charges.
For users looking to understand how to keep their payments free, the most important point is to distinguish between person-to-person payments, small-value merchant payments and higher-value merchant transactions. The new framework specifically targets selected merchant-side transactions rather than ordinary users.
Use UPI for Person-to-Person Transfers
If you are sending money to family members, friends or another personal account, there is no need to worry about the new MDR. P2P UPI transactions will remain free irrespective of the transaction amount. This also covers transfers between your own linked bank accounts. There are no monthly quotas or transaction-volume limits for individuals under this rule.
Therefore, transferring ₹5,000, ₹20,000 or ₹1 lakh to another individual through UPI will not automatically create an MDR charge for the user.
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Keep Regular Merchant Payments Within ₹2,000 When Practical
The new framework keeps UPI merchant payments up to ₹2,000 at zero MDR. The new 0.4% MDR applies to specified P2M transactions above ₹2,000.
For example, a ₹1,500 purchase from an eligible merchant remains within the zero-MDR threshold. However, consumers should not unnecessarily split a genuine large purchase into multiple transactions simply to stay below the threshold. The purpose of the rule is to classify payments based on their applicable transaction category, rather than encourage artificial transaction splitting.
Use UPI AutoPay for Recurring Payments
Another useful option is UPI AutoPay or UPI Mandates for recurring payments. The revised framework provides separate treatment for recurring mandate-based payments, including certain utility and mutual-fund subscriptions, which do not attract the prescribed MDR transaction charge.
This can be particularly useful for people who regularly pay subscriptions, bills or invest through recurring mandates. Instead of manually initiating a fresh UPI transaction every month, an eligible mandate can automatically process the recurring payment.
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Small Merchants Can Continue With Zero MDR
The new system also protects eligible small merchants. Businesses receiving up to ₹1 lakh per month through UPI QR payments under the P2PM classification continue to receive zero-MDR treatment. This includes many small shops and local businesses.
For customers, this means that paying a small neighbourhood merchant does not automatically mean the merchant will face the standard 0.4% MDR simply because the payment is made through UPI.
Know the Special ₹5 Categories
Not every payment above ₹2,000 falls under the standard 0.4% MDR. Certain essential and thin-margin categories have a flat ₹5 MDR instead. These include specified payments related to railways, telecom, insurance, fuel, utility bills and certain other designated sectors.
This distinction is important because the applicable charge depends on the merchant category and transaction type, not simply the amount being paid.
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Stock and Mutual Fund Payments Have a Separate Rate
Investors should also remember that capital-market transactions have a separate framework. UPI payments involving mutual funds, securities, stockbrokers and dealers carry an MDR of 0.02%, capped at ₹300 per transaction. This is considerably different from the standard 0.4% rate for eligible general merchant payments.
For investors, using eligible recurring mandates for SIPs can therefore be relevant when planning regular mutual-fund investments.
Can Merchants Add the UPI Charge to Your Bill?
The government has clarified that the MDR is not intended to become a direct consumer transaction fee. Banks have been advised to ensure that merchants do not pass the MDR on to customers, while UPI application providers are not permitted to introduce platform or hidden charges for UPI payments under the new framework.
If a merchant tells a customer that a separate UPI surcharge is mandatory, users should ask for a clear explanation and verify the applicable rules rather than assuming that every UPI payment now carries a customer fee.
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The Bottom Line
The October 15 changes do not mean that UPI has suddenly become a paid service for consumers. P2P transfers remain free, merchant payments up to ₹2,000 remain at zero MDR, eligible small merchants continue to receive zero-MDR treatment, and recurring UPI mandates receive separate treatment. Only specified merchant-side transactions above the applicable thresholds fall under the new MDR framework.
For users, the best approach is not to look for complicated ways to bypass the system. Instead, understand the transaction category, use UPI AutoPay where appropriate for recurring payments, and check the available payment method before making large merchant transactions.
Financial Disclaimer: This article is for educational and informational purposes only and should not be considered financial, investment or legal advice. Onetrader is not a SEBI-registered investment adviser.
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