UPI users may have several questions about the new Merchant Discount Rate (MDR) framework scheduled to take effect from October 15, 2026. Will customers have to pay extra for UPI transactions? Will sending money to friends and family attract a fee? What happens when someone pays more than ₹2,000 to a merchant?

The key point is that the MDR discussed in the new framework is a merchant-side charge. According to the information in the source, consumers will continue to make UPI payments without paying a separate transaction fee, while person-to-person transfers will also remain free.

For eligible merchant transactions above ₹2,000, however, merchants will have to pay MDR. The general rate mentioned in the source is 0.40%, subject to a maximum charge of ₹300 once the transaction reaches ₹75,000 or more.

Here are the key questions and answers UPI users should understand.

What Is MDR on UPI?

MDR stands for Merchant Discount Rate. It is a charge paid by merchants for processing digital payments.

In simple terms, when a customer pays a merchant digitally, several parts of the payment infrastructure work behind the scenes to process the transaction. MDR is associated with the cost of facilitating these merchant payments.

The source explains that merchants pay this commission to the banking/payment ecosystem for processing digital transactions.

This distinction is important because MDR should not be confused with a direct fee charged to every person who uses UPI.

Will Customers Have to Pay for UPI Transactions?

According to the source, no separate MDR will be charged to consumers.

Customers can continue using UPI to make payments without an additional MDR being deducted from their accounts. If a person purchases an item priced at ₹3,000, for example, the applicable merchant-side MDR does not mean the customer's UPI payment automatically becomes ₹3,012.

The source specifically states that UPI services will remain free for consumers.

Will Sending Money to Friends and Family Attract a Fee?

No, according to the source.

Transfers from one individual to another are known as Person-to-Person or P2P transactions. These transfers are described as remaining free under the framework.

This means that sending money through UPI to a friend, relative or family member will not attract the merchant MDR discussed here.

The MDR provision is therefore relevant to qualifying merchant payments rather than ordinary transfers between individuals.

Will Google Pay, PhonePe or Other UPI Apps Charge Customers?

The source also says that UPI apps will not be permitted to impose a separate consumer fee simply for using their platforms to make standard UPI payments.

Therefore, the introduction of merchant MDR should not be interpreted as meaning that every UPI app user will have to start paying a platform charge from October 15.

How Much MDR Will Merchants Pay?

According to the source, the general MDR for qualifying merchant UPI payments above ₹2,000 will be 0.40%.

A maximum limit of ₹300 per transaction will apply once the payment amount reaches ₹75,000 or more.

Here are some simple examples:

The source specifically gives the examples of a ₹3,000 transaction attracting ₹12 MDR and a ₹50,000 transaction resulting in ₹200 MDR.

Why Is the MDR Only ₹300 on a ₹1 Lakh Payment?

The ₹300 maximum limit makes a significant difference for larger transactions.

Mathematically, 0.40% of ₹1 lakh equals:

₹1,00,000 × 0.40% = ₹400

However, because the stated maximum MDR is ₹300, the charge would stop at ₹300 instead of increasing to ₹400.

Similarly, ₹75,000 × 0.40% equals exactly ₹300, which is where the general MDR reaches the stated ceiling.

Will Merchants Increase Prices Because of MDR?

The source argues that consumers are not expected to pay a higher price simply because a merchant incurs MDR.

It notes that businesses commonly absorb nominal digital payment-processing costs as part of doing business and that the UPI MDR is lower than typical credit-card processing charges.

However, whether an individual merchant changes the price of goods or services is ultimately a business decision. Therefore, this should be treated as an expectation described in the source rather than a guarantee that no merchant will ever adjust pricing.

What Changes From October 15?

The source says the MDR framework will take effect from October 15, 2026.

For ordinary consumers, the key distinction is between a merchant payment and a P2P transfer.

Consumers are described as continuing to use UPI without paying a separate MDR, while sending money to another individual through P2P UPI will also remain free. For qualifying merchant transactions above ₹2,000, the merchant will pay the applicable MDR.

Under the general rate given in the source, a ₹3,000 merchant transaction results in ₹12 MDR, ₹50,000 results in ₹200, and ₹75,000 reaches the maximum ₹300 charge.

So, the introduction of MDR should not be understood as a blanket fee on every UPI user or every UPI transaction. The charge described in the framework applies on the merchant side for qualifying transactions, while consumers and ordinary P2P transfers remain outside the MDR charge described in the source.

Disclaimer: This article is based on the MDR framework and examples described in the supplied source as of September 15, 2026. Payment rules and implementation details may be updated, so users and merchants should check the latest applicable guidelines.