UPI merchant fee of 0.4% on payments above ₹2,000 from Oct 15; SC declines stay
From 15 October 2026, a 0.4% merchant discount rate will apply to specified UPI merchant payments above ₹2,000. The Supreme Court issued notice on a challenge on 28 September but did not stay the framework.
The government has introduced a Merchant Discount Rate (MDR) on some larger UPI person-to-merchant (P2M) payments, which takes effect on 15 October 2026. This ends the zero-MDR regime that has applied to such payments for about six years. On 28 September 2026, the Supreme Court issued notice on a petition challenging the framework but did not stay it.
What changes
According to the Department of Financial Services' FAQs and media reports:
| Type of payment | Charge |
|---|---|
| Person-to-person (P2P) transfers | Free, whatever the amount |
| P2M payments up to ₹2,000 | Zero MDR |
| Specified P2M payments above ₹2,000 | 0.4% MDR |
| Payments of ₹75,000 and above | MDR capped at ₹300 |
| Railways, telecom, insurance, fuel, farm inputs (above ₹2,000) | Flat ₹5 per transaction |
| Mutual funds and securities | 0.02%, capped at ₹300 |
Reports say small merchants receiving up to ₹1 lakh a month through UPI QR codes stay at zero MDR. According to the government, payments up to ₹2,000 make up more than 95% of UPI P2M transaction volume.
Who pays? MDR is charged to the merchant, not to the customer, for accepting the payment. The Solicitor General told the Court that none of the MDR goes to the government and that it is a service charge levied by banks and payment aggregators.
The court challenge
A public interest petition challenges the Centre's notification of 14 September and the framework announced on 15 September. It argues the charge was brought in without enough statutory safeguards, transparency or public consultation. It also questions the validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007. The Court asked the Centre, the RBI and NPCI to respond within four weeks.
What you should know
- Sending money to friends and family on UPI stays free.
- Customers should check the final bill amount on large merchant payments.
- The case is still pending, so the rules could change depending on what the Court decides.
Frequently asked questions
Will I be charged for sending money to a friend on UPI?
No. Person-to-person transfers remain free regardless of amount.
Who pays the 0.4% MDR?
The merchant pays it to the bank or payment aggregator. It is not a charge on the customer.
Did the Supreme Court stop the charge?
No. It issued notice and asked for responses within four weeks, but did not stay the 15 October rollout.
Sources
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