New Delhi: India’s new merchant discount rate (MDR) framework for UPI payments will take effect on October 15, 2026, introducing a 0.4 percent charge on eligible payments above Rs 2,000 made to merchants.
The government maintains that consumers will continue to use UPI free of transaction charges. But keeping a separate fee off the customer’s bill does not settle the larger question: can businesses recover the additional expense through the prices they charge?
Under the framework, the standard MDR will be capped at Rs 300 per transaction. UPI payments up to Rs 2,000 and person-to-person transfers, irrespective of value, will remain free. Small merchants receiving up to Rs 1 lakh a month will retain mandatory zero MDR for all transactions.
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For an eligible Rs 3,000 purchase, the merchant will pay Rs 12 to its acquiring bank. That commission will be shared among payment ecosystem participants, including banks. MDR is a payment-processing fee, rather than a government tax. PTI’s framework summary
The framework provides concessional rates for specified categories. Essential sectors, including telecom, insurance and fuel, will pay a flat MDR of Rs 5 per transaction. Payments towards mutual funds and stockbrokers will attract 0.02 percent, capped at Rs 300.
A dedicated fund to promote UPI adoption among small merchants will receive 5 percent of total MDR collections. According to the announced framework, only 4 percent of merchant transactions will be affected. That limits its coverage, though transaction count alone does not establish the share of payment value affected.
UPI app providers are prohibited from imposing platform fees or hidden charges, while banks have been advised to ensure merchants do not pass MDR charges to customers.
The framework provides no monthly quotas or tiered caps on individuals’ free UPI transactions, although daily transaction limits continue to apply. PTI’s framework summary
The official justification is that UPI’s expanding network requires sustained spending on infrastructure, cybersecurity, fraud prevention and customer support. NPCI has presented the fee as a way to fund the system’s development.
In August, the Global Trade Research Initiative (GTRI) cautioned India against rewriting its UPI policies under American pressure. The think tank cited criticism of India’s UPI and RuPay framework in the US Trade Representative’s 2026 report on foreign trade barriers.
GTRI acknowledged that payment infrastructure needs sustainable funding, but argued that this did not automatically require a general merchant charge. It suggested alternatives including targeted budgetary support, cross-subsidisation and narrowly designed fees for large commercial transactions.
These concerns provide grounds to scrutinise the policy’s origins. They do not establish that the October framework was introduced at Washington’s direction. The available evidence supports questioning the extent of US influence, rather than declaring it the proven cause.
A merchant facing a Rs 12 charge on a Rs 3,000 sale initially bears that expense. The customer should not face an additional UPI surcharge. But the merchant could subsequently absorb the cost through a smaller margin, reduce discounts or adjust general prices.
If a business spreads payment expenses across its products, customers could bear part of the cost without ever seeing “UPI fee” on their bills. That burden could also extend to shoppers using other payment methods.
This is a possible economic response, not evidence that MDR has already caused price increases. It would also be inaccurate to claim that every tax or business charge inevitably reaches consumers in full. Competition, profit margins and customers’ willingness to pay determine how much a merchant can recover.
The exemptions for small merchants, concessional rates and transaction cap reduce the burden. Whether they adequately protect consumers will depend partly on how affected businesses respond.
The government’s assurance answers who can be charged directly. It does not guarantee who will ultimately bear the expense.
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After October 15, the test will extend beyond whether a UPI surcharge appears at checkout. It will include whether customers pay more for the same purchase—or receive a smaller discount—while their payment technically remains free.
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