NPCI Adds a 0.4% Fee to UPI Payments Above ₹2,000, But It's Merchants Who Pay, Not You
The National Payments Corporation of India (NPCI) has introduced a revised Merchant Discount Rate (MDR) framework for UPI, applying a 0.4% fee, capped at ₹300 per transaction, to Person-to-Merchant (P2M) payments above ₹2,000. The framework takes effect October 15, 2026.
Consumers will continue transacting on UPI at zero cost. The fee is charged to merchants, and small-value payments up to ₹2,000, which make up more than 95% of all UPI merchant transactions, are entirely unaffected.
The National Payments Corporation of India (NPCI) has introduced a revised Merchant Discount Rate (MDR) framework for UPI payments, applying a 0.4% fee to Person-to-Merchant (P2M) transactions above ₹2,000, capped at ₹300 per transaction. The framework takes effect October 15, 2026.
Crucially, the fee is charged to merchants, not consumers, who will continue using UPI free of cost as they always have. Person-to-Person (P2P) transfers remain completely outside the MDR's scope, as do P2M transactions of ₹2,000 or less, which account for more than 95% of all UPI merchant transactions in India.
Small merchants receive additional protection: vendors who receive ₹1 lakh or less per month through UPI will pay zero MDR regardless of individual transaction size. Meanwhile, four specific merchant categories, railways, telecom services, insurance, and fuel, will be charged a flat ₹5 per transaction above ₹2,000 rather than the percentage-based rate, reflecting the high volume and often fixed-price nature of payments in those sectors.
The announcement follows a period of public uncertainty: as recently as earlier this year, the finance ministry had stated there was no plan to levy MDR or GST on UPI transactions, making this narrower, merchant-only fee notable both for what it introduces and for what it continues to exclude. NPCI has framed the change as aimed at expanding UPI acceptance and accelerating the inclusion of small businesses in India's digital payments ecosystem, funded in part by merchants at higher transaction values rather than relying solely on government subsidy.
Why It Matters
UPI processes billions of transactions a month and has been free for both sides since launch, funded instead by government incentive schemes for banks and payment apps. Introducing any merchant-side fee, even a small, capped one, marks a shift toward UPI's infrastructure eventually paying for itself, an important question for a public payments rail this large.
The structure is deliberately narrow: it targets only the roughly 5% of P2M transactions above ₹2,000, exempts peer-to-peer transfers entirely, and caps the fee at ₹300 regardless of transaction size. That design suggests NPCI is trying to introduce merchant-side revenue without touching the small daily transactions, kirana store purchases, auto rides, vegetable vendors, that make UPI part of daily life for most Indians.
Key Financial Data
| Metric | Value |
|---|---|
| MDR rate | 0.4% on Person-to-Merchant (P2M) UPI transactions above ₹2,000 |
| Fee cap | ₹300 per transaction (e.g., a ₹2,000 transaction incurs about ₹8) |
| Effective date | October 15, 2026 |
| Exempted transactions | All Person-to-Person (P2P) transfers; P2M transactions up to ₹2,000 |
| Small merchant exemption | Vendors receiving ₹1 lakh or less monthly pay zero MDR |
| Flat-fee categories | Railways, telecom, insurance, and fuel: flat ₹5 per transaction above ₹2,000 |
| Who pays | Merchants bear the MDR; consumers pay nothing extra |
| Share of transactions unaffected | More than 95% of all UPI P2M transactions (those ₹2,000 and under) |
Market Reaction
Coverage across Indian financial media, The Hindu, Times of India, NDTV, BusinessToday, and The Tribune among them, converged quickly on the same framing: this is a merchant fee, not a consumer charge, and it follows months of speculation and denial. As recently as earlier in 2026, the finance ministry had publicly stated there was no plan to levy GST or MDR on UPI transactions, making this reversal notable in itself.
Historical Context
UPI has been effectively free for merchants and consumers alike since its 2016 launch, with the ecosystem subsidized through a government incentive scheme reimbursing banks for zero-MDR transactions. Industry bodies representing payment aggregators and banks have periodically pushed for some form of merchant fee, arguing that a purely subsidy-funded model isn't sustainable at UPI's current transaction volumes. This is the first broad-based MDR NPCI has introduced since UPI's launch, though a much narrower fee already applied to a subset of prepaid-instrument transactions.
Risks
- Merchants processing many transactions just above ₹2,000 will see a real, if capped, cost increase, and some may pass this on informally despite consumers technically remaining exempt.
- The ₹2,000 threshold could shift consumer and merchant behavior, splitting single larger purchases into multiple smaller UPI payments to avoid the fee.
- Because the fee is new and merchant-facing, confusion is likely in the initial weeks; several outlets have already had to publish explainer/FAQ pieces to clarify that consumers are not charged.
- If this MDR structure proves financially significant for NPCI or the government, it could be a first step toward broader fees later, something the finance ministry has denied before and reversed on already.
Future Outlook
The following is analysis and prediction, not confirmed fact.
Watch how merchants just above the ₹2,000 threshold, and payment aggregators serving them, respond in the weeks after October 15. If adoption of workarounds (like splitting transactions) becomes widespread, NPCI may face pressure to adjust the threshold or cap. The flat ₹5 fee for railways, telecom, insurance, and fuel is also worth tracking separately, since those are high-volume, often recurring payment categories where even a small flat fee adds up at scale.
Investor Takeaways
This is not investment advice. What to watch, not what to do.
- This is not investment advice. What to watch, not what to do.
- Payment aggregators and fintechs that serve merchants (Razorpay, PayU, Cashfree, etc.) may see a new, small revenue line from MDR pass-through arrangements with larger merchants.
- Banks and NPCI itself stand to gain a modest new revenue stream on high-value P2M UPI transactions, a shift from the pure-subsidy funding model UPI has relied on since 2016.
- Watch merchant categories with many transactions just above ₹2,000, small e-commerce, ticketing, services, for how they adapt pricing or transaction structuring.
Source: The Tribune
