Will I have to pay to send money to friends and family via UPI?

No. Person-to-person (P2P) UPI transfers remain free at any amount, and this did not change with the 15 October 2026 MDR. The 0.4% fee applies only to merchant payments, is paid by the merchant, and merchants are not permitted to pass it on to you as a surcharge.

What exactly changes on 15 October 2026?

NPCI's MDR structure takes effect. Merchant payments above Rs 2,000 attract 0.4%, capped at Rs 300 per transaction. Payments of Rs 2,000 or less are free, P2P is free, and merchants receiving under Rs 1 lakh a month are exempt entirely. Railways, telecom, insurance, fuel and utilities pay a flat Rs 5 instead; capital-market payments pay 0.02% capped at Rs 300.

Is GST charged on UPI transactions?

No. GST is not levied on the value of your UPI transaction - that claim is false. What is true is that the MDR is a service fee, so 18% GST applies to the fee itself. On a Rs 10,000 sale the merchant pays Rs 40 MDR plus Rs 7.20 GST on that fee, not 18% of Rs 10,000. GST-registered merchants can reclaim it as input tax credit.

Which merchants actually have to pay?

Merchants receiving more than Rs 1 lakh per month via UPI, and only on individual transactions above Rs 2,000. NPCI has said transactions of Rs 2,000 or less account for roughly 96% of merchant volume, so most small and mid-sized sellers are unaffected in practice.

Can a shop add a UPI fee to my bill after 15 October?

No. Merchants are barred from passing the MDR on to customers as a surcharge. The price you pay should be unchanged. If a merchant adds a separate 'UPI charge' at checkout, that is not permitted under the framework.

How is this different from debit or credit card MDR?

Card payments have carried an MDR of roughly 1-2% for years, applied from the first rupee. UPI's 0.4% is well below that, starts only above Rs 2,000, is capped at Rs 300, and exempts merchants under Rs 1 lakh a month. UPI ran at zero MDR from 2020 until this change.

Digital Payments · Updated 23 Sept 2026

UPI Charges from 15 October 2026: 0.4% MDR — and Who Actually Pays It

Published 9 August 2026. Updated 23 September 2026. When this article first ran, Parliament had passed an enabling law but no charge existed. That has now changed. On 15 September 2026, NPCI published the actual MDR structure, effective 15 October 2026. Below are the confirmed rates, who is exempt, and why this still does not mean you pay to use UPI.

The short version: UPI stays free for you. A 0.4% fee applies to merchants on payments above ₹2,000, capped at ₹300, and merchants are barred from passing it on to customers. Person-to-person transfers are free at any amount.

The confirmed MDR structure, effective 15 October 2026

NPCI released the rates and an FAQ on 15 September 2026. The fee is a Merchant Discount Rate — it is deducted from what the merchant receives, not added to what you pay.

Transaction type	MDR	Cap
Person-to-person (P2P), any amount	Nil	—
Merchant payment up to ₹2,000	Nil	—
Merchant receiving under ₹1 lakh/month	Nil	—
Merchant payment above ₹2,000 (standard)	0.4%	₹300
Railways, telecom, insurance, fuel, utilities (above ₹2,000)	Flat ₹5	₹5
Capital markets — mutual funds, broking (above ₹2,000)	0.02%	₹300

NPCI has stated that transactions of ₹2,000 or less make up roughly 96% of UPI merchant volume, so the large majority of payments are untouched. Critically, merchants are not permitted to pass the MDR on to customers as a surcharge — so the price you see at checkout should not change because of this.

The part most coverage missed: 18% GST applies on the fee

The MDR is a service charge, so it attracts 18% GST — levied on the fee itself, not on the value of your transaction. This distinction matters, and it is where most of the online confusion comes from.

On a ₹10,000 sale, a merchant pays ₹40 MDR plus ₹7.20 GST — ₹47.20 in all, not 18% of ₹10,000. GST-registered merchants can claim that ₹7.20 back as input tax credit, so the real cost for most registered businesses is the ₹40. You can work the GST component out on any fee amount with our GST Tax Calculator, which splits CGST and SGST and handles both tax-exclusive and tax-inclusive amounts.

How the law got here

The rates above did not appear from nowhere. They rest on a law Parliament passed in August 2026, which removed a statutory bar on charging for UPI. That background explains why the charge is structured the way it is — and why the earlier reporting said no fee existed.

What the bill changed

The amendment targets Section 10A of the Payment and Settlement Systems Act, 2007. Until now, Section 10A barred banks and payment service providers from charging any fee — directly or indirectly — on payment modes notified under Section 269SU of the Income-tax Act, 1961, which covers UPI and RuPay debit cards. The new law removes that blanket prohibition and instead gives the Central Government the power to notify, at a time and in a manner of its choosing, which electronic payment modes may attract a charge.

That is the entire operative change: an enabling provision. It creates the legal mechanism for a future Merchant Discount Rate (MDR) on UPI. It does not, by itself, set a rate, a threshold, or a start date.

What the government said in August — and how it turned out

Facing public confusion, the Finance Ministry issued a clarification on 8 August 2026. The September rates largely bore it out:

Person-to-person UPI stays free. Sending money to friends, family or splitting a bill will not attract any charge.
No blanket merchant MDR. The government said it is not considering an across-the-board fee on merchant UPI payments.
Any future MDR would be narrow. Officials said it would apply only to higher-value merchant transactions, at a rate well below the 1–2% charged on cards. Confirmed: the final rate is 0.4% above ₹2,000.
The vast majority of merchant transactions would remain free. Confirmed: about 96% of merchant volume is under ₹2,000, and merchants taking under ₹1 lakh a month are exempt outright.

GST on the fee is real. GST on your transaction is not.

These two claims get conflated constantly, so be precise. The recurring claim that GST is levied on the value of UPI transactions is false and was called baseless by the Finance Ministry. What is true is narrower: the 0.4% MDR is a service, and 18% GST applies to that fee. Send ₹50,000 to a merchant and you are not taxed on ₹50,000 — the merchant pays ₹200 MDR and ₹36 GST on it. Your side of the transaction is unchanged.

Why the government wants this power now

UPI has run at zero MDR for merchants since 2020, a gap partly bridged by a government incentive scheme that reimburses banks and payment providers for processing costs. Officials have framed the amendment as a step toward the "long-term sustainability, technological development and resilience" of the UPI ecosystem — giving the government flexibility for a future funding model without committing to one now.

What to actually do before 15 October

If you are a consumer: nothing. You cannot be charged for UPI, P2P stays free at any amount, and merchants are barred from adding a surcharge. If a shop tries to add a "UPI fee" to your bill after 15 October, that is not permitted.

If you are a merchant taking under ₹1 lakh a month: you are exempt. No action.

If you are a larger merchant: work out the cost on your own mix. Only the slice of sales above ₹2,000 attracts 0.4%, capped at ₹300, so a high-ticket business hits the cap at ₹75,000 per transaction. Register for GST input credit if you have not, since the 18% GST on the fee is recoverable. If you are in railways, telecom, insurance, fuel or utilities, you pay a flat ₹5 rather than a percentage, which is far cheaper on large tickets.

Sources

Note: Updated 23 September 2026 to reflect the MDR structure NPCI published on 15 September 2026, effective 15 October 2026. The rates above are as announced by NPCI; the date of presidential assent to the amending Act could not be independently confirmed at the time of writing. Verify with NPCI, the Ministry of Finance or your payment provider before making business decisions.