A 0.4% merchant discount rate (MDR) will apply from 15 October 2026 to some eligible UPI merchant payments above ₹2,000, but customers will not be charged separately at the time of payment, according to Aaj Tak Business. The reported change will affect selected merchant transactions rather than every UPI payment.
The issue matters because UPI has become part of everyday urban commerce, from grocery and vegetable purchases to cab fares and retail payments. The new arrangement could alter how payment costs are shared between merchants and the other participants in the digital payments system, while keeping the customer-facing payment experience unchanged for eligible transactions.
RBI Governor Sanjay Malhotra addressed the possible impact after the Reserve Bank of India’s October monetary policy review. Asked whether the introduction of MDR could reduce UPI usage, he said the decision to introduce the charge had already been taken and that the central bank did not expect any major decline in UPI transactions because of it.
Under the reported arrangement, the 0.4% charge will apply only to certain eligible merchant payments above ₹2,000. It will not apply uniformly to all UPI transactions. Transfers between individuals, such as sending money to a friend, family member or relative, are not included in the change described in the report.
For example, if a customer buys goods worth ₹5,000 from a shop and pays through UPI, the customer would continue to pay ₹5,000 rather than an additional 0.4% fee at checkout. The MDR is intended to be applied within the payment ecosystem to the merchant transaction and is not described as a direct charge on the customer.
The change marks a shift from the zero-MDR framework under which UPI has operated for several years. That arrangement helped make UPI a low-cost payment option for both consumers and merchants. The reported policy adjustment is narrower, covering only specified higher-value merchant payments instead of bringing all UPI transactions under a common fee.
A key concern for merchants is whether the cost could eventually be reflected in prices or whether some businesses could discourage digital payments to avoid the charge. Aaj Tak Business reported these concerns but also said the RBI does not expect a major fall in UPI use. The practical effect will depend on how payment participants and merchants implement the new arrangement after it takes effect.
The government’s stated objective, as reported by Aaj Tak Business, is to support the long-term sustainability of the digital payments system while retaining free UPI payments for ordinary customers. This places the change within a broader effort to balance the operating costs and revenues of the entities involved in processing merchant payments.
For most customers, the immediate message is that UPI will not become universally chargeable from 15 October. The reported MDR applies to some merchant payments above ₹2,000, while routine person-to-person transfers and other transactions outside the specified category remain unaffected. The implementation of the new merchant-payment arrangement from 15 October will be the next key milestone.
