UPI merchants will pay 0.4% from 15 October on payments above ₹2,000

From 15 October 2026, a merchant who takes a Unified Payments Interface payment of more than ₹2,000 will pay a fee for the first time since January 2020. The National Payments Corporation of India set the merchant discount rate at 0.4 percent of the ticket. For payments of ₹75,000 and above the charge stops rising at ₹300. The payer still pays nothing.

NPCI issued the operational circular on 15 September after its UPI steering committee fixed category rates, caps and how the fee will be split among acquiring banks, issuing banks and app providers. The finance ministry published a parallel note the same evening. Person-to-person transfers stay free at every amount. There is no monthly quota and no cap on how much one person can send another through UPI.

The numbers that sit under the new price are large. P2P already accounts for about 37 percent of UPI volume and about 70 percent of its value. Payments to merchants of ₹2,000 or less, plus the small-merchant exemption, cover close to 96 percent of merchant tickets, according to the official FAQ. Those tickets remain free. Street vendors and neighbourhood shops that take up to ₹1 lakh a month through UPI QR codes under the person-to-person-merchant category also stay at zero on every transaction.

What a shop actually pays

On a ₹3,000 sale the merchant owes ₹12. On ₹10,000 the bill is ₹40. On ₹50,000 it is ₹200. On ₹1 lakh the raw 0.4 percent would be ₹400, but the ₹300 cap applies once the ticket crosses ₹75,000. The acquiring bank collects the fee. Banks have been told not to let merchants add the charge to the customer’s bill. App providers are barred from layering a platform fee on top of UPI.

Thin-margin public services get a different price. Railways, telecom, insurance, fuel, agricultural inputs, electricity, water, piped gas and education pay a flat ₹5 on each UPI ticket above ₹2,000 instead of a percentage. Those categories make up about 17 percent of merchant volume and about 46 percent of merchant value. Mutual funds, securities and stockbroker payments sit on a third track: 0.02 percent, also capped at ₹300.

Credit card merchant fees in India still run from about 1.5 to 2.5 percent. Debit card fees are capped at 0.9 percent. UPI’s new rate sits well below both. That gap is the political argument the government is using against the charge that New Delhi has surrendered a free public good. Congress leaders Jairam Ramesh and Rahul Gandhi said the 0.4 percent rate answers a long-standing American demand that India stop treating UPI as a zero-price network. The official line is narrower. Banks and fintechs have said for years that they cannot keep building fraud controls, dispute desks and uptime on a fee of zero while monthly volumes sit in the billions.

Who keeps the money

The circular splits the 0.4 percent among the acquiring bank, the issuing bank and the app that sits on the phone. A fifth of the new pool is reserved to fund UPI expansion among small merchants. That line is the closest the document comes to an industrial policy. It also explains why the ₹1 lakh monthly exemption was written in. The state wants kirana shops and street vendors to stay on QR rather than slide back to cash once a fee appears on larger tickets.

Banks and payment aggregators have a month to recode their switch logic. The date of 15 October gives them a clear cutover. After that date a supermarket billing a ₹4,500 grocery basket will see a ₹18 line item that did not exist in September. A fuel pump on the same ticket will see ₹5. A mutual fund folio topping up ₹50,000 will see ₹10.

The gazette change that preceded the circular matters for the legal footing. The government notified amendments to the Payment and Settlement Systems Act framework so that banks cannot levy charges on UPI and RuPay debit transactions of up to ₹2,000. That is the floor the circular then prices above. Without that gazette line, a bank could have tried to put a fee on the small tickets that still make up most of the volume. The two documents should be read together. One protects the small payment. The other prices the large one.

UPI’s growth since 2020 was bought with a subsidy. Issuing banks, acquiring banks and apps ate the cost of switches, chargebacks and customer desks. Some of them offset it with float, with credit cross-sell and with data they could not legally sell as raw data. The 0.4 percent rate is the first open admission that the subsidy had a date. It is not a return to card economics. It is a thin tax on the tail.

Where the volume may move

A supermarket chain that already takes cards will compare ₹18 on a ₹4,500 UPI basket with the card MDR on the same basket. UPI still wins that comparison by a wide margin. A jewellery counter taking ₹80,000 will pay ₹300 on UPI and several thousand on a credit card. The incentive to keep the customer on the QR remains. The incentive that changes is the incentive to push a ₹2,100 ticket back down to ₹1,999, or to split a bill. NPCI will see that behaviour in October if it appears. Split tickets are an old merchant habit on any network that prices by threshold.

Consumers will notice the change only if a merchant tries to recover the fee at the counter. The circular says that is not allowed. Enforcement will sit with the acquiring bank and, behind it, NPCI. How tightly that rule is policed will decide whether the new MDR stays a merchant cost or becomes a quiet surcharge on the receipt.

The zero-MDR experiment that began in January 2020 did what it was built to do. It moved daily commerce onto a public rail. The question from 15 October is whether a 0.4 percent slice on the fat tail of tickets is enough to pay for the rail without pushing those tickets onto cards or cash. The first full month of data, due in November, will show which way the volume moved.