From paying for groceries and ordering food to transferring money to friends, UPI has become a part of everyday life in India. What started as a digital payment facility has grown into one of the world's largest real-time payment systems.
The scale is massive. In August 2026 alone, UPI processed 24.51 billion transactions worth approximately ₹29.82 lakh crore. That's close to 80 crore transactions every day. UPI also accounted for 84% of India's digital payment volume in FY 2025-26, according to recent reporting.
Now, a change is set to take effect for select UPI merchant payments. From October 15, 2026, eligible Person-to-Merchant (P2M) transactions above ₹2,000 will attract a Merchant Discount Rate (MDR) of 0.4%.
But does this mean you will have to pay extra when using Google Pay, PhonePe, or another UPI app? Not necessarily. The new MDR will be paid by eligible merchants and cannot be passed on to customers.
In this blog, we explain the new UPI rules in 2026, how the revised MDR framework works, which transactions remain free, and what the changes mean for everyday users.
#Interesting UPI Statistics and Developments
Before getting into the new rules, let's look at a few numbers and developments that show how UPI has evolved.
.#1. UPI handles close to 80 crore transactions every day
With 24.51 billion transactions recorded in August 2026, UPI averaged about 79 crore transactions per day. This reflects how frequently individuals and businesses use the payment system for everyday transactions.
#2. UPI has become a major part of India's digital payments
UPI accounted for 84% of India's digital payment volume in FY 2025-26. It also accounted for 49% of global real-time payment volumes in 2025, according to figures cited in recent reports.
#3. UPI has expanded beyond India
UPI has expanded into international markets, including the UAE, Singapore, Bhutan, Nepal, Sri Lanka, France, Mauritius, and Qatar. Availability depends on participating institutions, merchants, and the services supported in each market.
#4. UPI supports contactless tap-and-pay
NPCI has introduced a tap-and-pay feature that uses Near Field Communication (NFC) technology. At supported point-of-sale terminals, users can make contactless payments by tapping their smartphones without opening the UPI app.
#5. UPI has grown significantly since its launch
UPI completed 10 years in August 2026. Over this period, it has evolved from a relatively new payment facility into a major part of India's digital payment infrastructure. Its growing transaction volume and expanding use cases reflect this change.
#What Has Changed Under the New UPI Rules?
The main change is the introduction of MDR on select Person-to-Merchant (P2M) UPI transactions above ₹2,000.
MDR is a fee associated with processing certain digital payments. Under the new framework, eligible merchants will pay this charge upon receiving qualifying UPI payments.
The standard MDR rate is 0.4%, subject to a maximum charge of ₹300 for transactions of ₹75,000 or more. Certain sectors have concessional rates.
The framework will come into effect on October 15, 2026. However, it does not apply uniformly to every UPI transaction. Person-to-Person (P2P) transfers and merchant payments up to ₹2,000 will continue to remain free of MDR.
#How Does the New UPI MDR Framework Work?
The MDR payable by an eligible merchant depends on the transaction amount and the applicable rate.
For standard eligible transactions, the rate is 0.4%. However, a cap limits the MDR on high-value payments.
Here are some examples:
These examples assume the standard MDR applies. Transactions of ₹75,000 and above are subject to the ₹300 cap.
For example, if an eligible merchant receives a payment of ₹50,000, the MDR would be ₹200. For a payment of ₹1 lakh, the charge would be capped at ₹300 instead of ₹400.
These charges are part of the merchant-side payment framework and are not an additional fee for the customer.
#MDR Rates for Different Transaction Categories
The new UPI payment rules provide different MDR rates for certain categories.
The concessional rates apply to specified sectors. Therefore, the standard 0.4% rate should not be assumed to apply to every eligible merchant payment.
#What Will Remain Free Under the New UPI Rules?
The revised MDR framework does not make all UPI transactions chargeable.
The following categories will continue to remain free under the framework described in the source:
- Person-to-Person (P2P) UPI transfers, regardless of the amount. So, transfer to family, friends will be free.
- Person-to-Merchant (P2M) transactions up to ₹2,000.Your payments to shopkep
- Eligible payments received by small merchants under the P2PM framework.
Small merchants, including street vendors, receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category will continue to be protected from MDR.
The framework also clarifies that merchants cannot pass the MDR on to customers. Individuals will not face a separate UPI transaction or platform fee for sending or receiving money under these rules.
#Why Is NPCI Introducing MDR on UPI Transactions?
UPI processes billions of digital payments every month. Maintaining the infrastructure behind these transactions involves substantial operating expenses.
These costs include:
- Server infrastructure and bandwidth
- Fraud prevention
- Cybersecurity
- Technical support
As per the market, the annual cost of maintaining UPI operations at around ₹20,000 crore.
The new MDR framework is intended to create a more sustainable commercial model for the UPI ecosystem. The revenue generated is expected to support investments in payment infrastructure, technology, cybersecurity, and customer service.
It is also intended to reduce the payment industry's reliance on government subsidies as a long-term funding source.
#UPI's Growing Scale in India
The growing use of digital payments has increased the need to maintain and expand payment infrastructure.
In August 2026, UPI processed approximately 2,451 crore transactions, with a total transaction value of ₹29.82 lakh crore.
This scale highlights the volume of payments being handled by the UPI network and the infrastructure required to support it.
The report also mentions a proposed dedicated fund for small merchants. It is intended to support digital payment infrastructure in Tier 3 to Tier 6 centers, including the northeastern states, Jammu & Kashmir, and Ladakh. The detailed framework was expected to be finalized in consultation with the RBI within three months of the announcement.
#Conclusion
The new UPI rules introduce MDR on select Person-to-Merchant transactions above ₹2,000 from October 15, 2026. The standard rate is 0.4%, with a cap of ₹300 for transactions of ₹75,000 and above. Certain sectors will have concessional rates.
However, the change does not mean that UPI users will have to pay an additional transaction fee. P2P transfers will remain free, merchant payments up to ₹2,000 will continue to have zero MDR, and eligible small merchants will also remain protected.
For customers, the key takeaway is that the new framework changes merchant-side payment charges, rather than introducing a general fee for using UPI.
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