Business & Finance
NPCI Outlines UPI Transaction Charges Effective October 2026
The National Payments Corporation of India (NPCI) has released a circular detailing additional charges on specific UPI payments, effective October 15, 2026. While the Opposition has expressed concerns about increased consumer prices, the government maintains that consumer impact will be minimal and merchant impact limited.
The Merchant Discount Rate (MDR) is a fee paid by merchants to payment processors and banks for using UPI. Consumers will not directly pay this charge. The Ministry of Finance, on September 15, 2026, advised banks to ensure merchants do not pass MDR charges to customers and prohibited UPI application providers from imposing platform or hidden fees on users.
MDR will apply to mid- to large-sized merchants for UPI transactions exceeding ₹2,000, with a charge of 0.4%. For transactions of ₹75,000 or more, the MDR will be capped at ₹300 per transaction.
In essential sectors such as railways, telecommunications, insurance, fuel, and agricultural inputs, transactions of ₹2,000 or more will incur a flat MDR of ₹5 per transaction. The government states this flat charge provides cost certainty for critical public services and businesses with narrow margins.
Capital market transactions, including payments to mutual funds, stockbrokers, dealers, and for equities, will have an MDR of 0.02%, capped at ₹300 per transaction. This lower rate is intended to support retail participation in formal financial markets.
An analysis of NPCI data indicates that person-to-merchant (P2M) transactions above ₹2,000 constitute 2.5% of all UPI transactions by volume.
All Person-to-Person (P2P) transactions will remain free, regardless of the amount. The government has specified that no transaction fee, platform fee, or other charge may be imposed on individuals for sending or receiving money via UPI. P2P UPI transactions account for approximately 37% of the total UPI transaction volume.
Payments to merchants up to ₹2,000 will also remain free of MDR, representing 60.5% of all UPI transactions by volume. In total, 97.5% of all UPI transactions will remain free.
Small merchants, including street vendors, receiving up to ₹1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category, will be exempt from MDR. This further reduces the proportion of UPI payments subject to charges.
The government has stated that MDR will be shared among payment ecosystem participants, including banks, payment service providers, and UPI application providers. P2M transactions above ₹2,000 represented ₹5.99 lakh crore of the ₹29.8 lakh crore transacted over UPI in August 2026, making up 20% of all UPI transactions by value.
The maximum potential earnings from MDR for banks and payment processors are estimated at ₹2,400 crore per month (0.4% of ₹5.99 lakh crore) or ₹28,000 crore annually, though actual receivable amounts will be lower due to various caveats, exemptions, flat rates, and caps.
Approximately 40% of the collected MDR goes to the payer’s bank, covering authorization, security, and settlement costs. Yes Bank is a significant beneficiary, acting as the payer bank in over 50% of all UPI transactions, followed by ICICI Bank at 18.3%.
The merchant’s bank, or receiving bank, receives 30% of the MDR for managing merchant relationships, QR code deployment, and settlement processing. Yes Bank is the payee in about 55% of all UPI transactions, with Axis Bank following at approximately 19%.
Another 20% of the MDR is allocated to the UPI app or Third-Party Application Provider (TPAP). PhonePe accounts for about 46% of UPI transactions by volume, and Google Pay for another 32%, positioning them to benefit from this allocation.
The remaining 10% of the MDR goes to the Payment Service Provider that connects the technology partner bank to the central network switches.
A dedicated fund, equivalent to 5% of total MDR collections, will be established to promote UPI adoption among small merchants. The specific source of this 5% contribution from payment system players has not been specified. This information was published on September 16, 2026, at 12:43 pm IST.