What are the New UPI Payment Rules in 2026?

Updated on Tuesday, September 29th, 2026 | By IndusInd Bank

Summary

• UPI remains free for customers for most everyday transactions, including person-to-person (P2P) transfers and merchant payments up to ₹2,000.
• From October 15, 2026, a 0.4% MDR applies to certain merchant transactions above ₹2,000, with a maximum cap of ₹300 per transaction.
• The MDR framework primarily affects the merchant payment ecosystem and is not a direct charge on customers.
• Eligible small merchants under the P2PM framework continue to enjoy zero MDR benefits.

Introduced in 2016, the Unified Payments Interface (UPI) has helped to transform the Indian digital payment ecosystem by making money transfers fast, convenient and largely free. However, with the announcement of a revised Merchant Discount Rate (MDR) framework effective from October 15, 2026, many customers are wondering whether UPI payments will continue to remain free.

The key update is that most everyday UPI transactions for consumers remain free. [N1] Only certain merchant transactions may now involve charges. Let’s understand how the new rules work.

Are UPI Payments Free in India?

Yes, UPI payments remain free for customers in most cases. Regardless of the transaction amount, you will not attract any charges for person-to-person (P2P) transactions, such as sending money to friends, family members or transferring funds between your own bank accounts. When it comes to merchant payments, transactions of up to ₹2,000 made through UPI linked directly to a bank account remain free. Customer will not have to pay any additional fee for making these payments.

For more details, read this.

What Are the UPI Charges for Different Types of Transactions?

The applicable UPI charges depend on the type and value of the transaction.

From October 15, 2026, eligible person-to-merchant (P2M) transactions above ₹2,000 will attract a 0.4% MDR, capped at ₹300 per transaction for payments of ₹75,000 or more.

To better understand how this works, consider a few examples. For a UPI merchant payment of ₹3,000, the applicable MDR would be ₹12, while a transaction of ₹50,000 would attract an MDR of ₹200. Lastly, if you make a payment of ₹1 lakh, the MDR will not exceed ₹300.

What are the UPI Charges for Customers and Merchants?

One of the biggest misconceptions around the new UPI rules is that consumers must pay a fee for transactions exceeding ₹2,000. But in reality:

For Customers

• P2P payments remain completely free.
• Merchant payments up to ₹2,000 remain free.
• Customers are not directly charged MDR.
• UPI apps are prohibited from imposing hidden platform fees on users.

For Merchants

• Eligible merchant transactions above ₹2,000 attract a 0.4% MDR.
• The MDR supports payment infrastructure, cybersecurity, innovation and network maintenance.
• Small merchants under specified categories continue to enjoy zero MDR benefits.

What are UPI Charges on Wallet Payments?

Wallet-based UPI transactions follow a slightly different framework from bank-account-based UPI payments.

What Is a Prepaid Payment Instrument?

A Prepaid Payment Instrument (PPI) is a digital payment method that stores money in advance. Examples include digital wallets that allow users to make payments using the preloaded funds. Common PPIs include:

• Mobile wallets
• Digital prepaid wallets
• Stored-value payment instruments

When Can an Interchange Fee Apply?

An interchange fee may apply when a customer makes a merchant payment through a UPI-linked wallet rather than a bank account. The interchange fee is not charged to the consumer. Instead, it is typically settled between payment service providers and merchants as part of the payment processing arrangement. Wallet-based merchant payments above certain thresholds may therefore involve additional costs within the ecosystem.

What are the Applicable Charges for RuPay Credit Card on UPI?

The new MDR framework doesn’t apply to credit card-linked UPI payments, like RuPay Credit Cards linked to UPI. This is basically because they operate under a different framework from regular bank-account UPI payments. When you use a RuPay Credit Card through UPI:

• The transaction is treated similarly to a credit card payment.
• Merchant-related charges may be governed by separate card network rules.
• The new 0.4% UPI MDR framework does not automatically apply to these transactions.
• Applicable charges, if any, depend on the merchant category and card acceptance arrangements.

For consumers, using a RuPay Credit Card on UPI generally remains seamless, though merchants may be subject to different fee structures than standard bank-account UPI transactions.

Bank Account UPI vs Wallet UPI: A Quick Comparison

Conclusion

UPI continues to be one of the most affordable and convenient payment methods in India. While the new MDR framework, effective from October 15, 2026, will brins charges for certain merchant transactions above ₹2,000, consumers can continue using UPI for everyday payments without worrying about transaction fees. Most person-to-person transfers and small merchant payments remain free, while the newly introduced charges primarily apply within the merchant payment ecosystem.

Understanding the difference between bank-account UPI, wallet UPI, and RuPay Credit Card on UPI can help users make informed payment choices and continue enjoying the benefits of India’s leading digital payment platform.

Also read: What is the UPI Transaction Limit Per Day?

Frequently Asked Questions

1. Is GST charged separately on a UPI transaction?

No, customers do not pay any GST on the standard UPI payments linked directly to a bank account.

2. Can a merchant add a convenience fee when a customer pays via UPI?

Merchants are generally not permitted to pass on UPI-related MDR charges directly to customers. However, certain businesses may levy convenience fees for specific services based on their pricing policies and applicable regulations. Customers should always review the payment details before completing a transaction.

3. Are there any charges if a UPI transaction fails but the amount is debited?

No. If a UPI transaction fails but the amount is debited from your account, you are not charged any additional fee. In most cases, the amount is automatically refunded to the source account within the prescribed timelines set by the bank or payment service provider. If the refund is delayed, you can raise a complaint through your UPI app or bank.

4. Do UPI AutoPay mandates attract any transaction or processing charges?

Generally, UPI AutoPay mandates for recurring payments like utility bills do not attract separate transaction charges for customers. The payment is processed automatically based on the approved mandate.

5. Are international UPI payments subject to additional charges?

International UPI payments may be subject to charges depending on the participating bank, payment service provider, merchant location, currency conversion requirements and cross-border payment arrangements.