The introduction of Merchant Discount Rate (MDR) on certain UPI transactions from October 15, 2026, has led to confusion among users over whether they will have to pay extra whenever they make a digital payment. However, the new framework does not impose MDR on every UPI transaction. The charges apply only to specified merchant categories and transaction types, while several common UPI payments will continue without an MDR being charged to the user.
Here are seven types of UPI transactions where customers will not have to pay MDR:
1. Money Transfers Between Individuals
UPI payments made from one person’s bank account to another, such as sending money to a friend, relative or family member, are classified as Person-to-Person (P2P) transactions. These transfers will remain outside the MDR framework, meaning users will not face an additional charge when transferring money to another individual.
2. Receiving Money Through UPI
Receiving money into a personal bank account through UPI will also remain free of MDR. Whether money is being sent or received between individuals, the transaction does not attract a separate merchant discount charge.
3. Payments to Small Merchants
Small businesses and street vendors covered under the P2PM category will continue to benefit from zero MDR, subject to the applicable eligibility conditions. Merchants receiving up to Rs 1 lakh per month through UPI QR payments fall under this category.
4. Merchant Payments Up to Rs 2,000
UPI payments of up to Rs 2,000 at eligible merchants will not attract MDR. This covers a large number of routine purchases, allowing customers to continue making smaller digital payments without an additional charge.
5. Merchant Payments Above Rs 2,000
A UPI payment exceeding Rs 2,000 does not mean the customer will automatically be charged MDR. Where MDR is applicable, it is a merchant-side charge and cannot simply be added to the customer’s bill as a UPI fee. The applicable rate and cap depend on the merchant category.
6. UPI AutoPay Transactions
Recurring payments made through UPI AutoPay, including subscriptions, regular bills and other authorised automatic deductions, will not attract a separate MDR charge for the customer under the new framework.
7. Small-Value Payments in Essential Services
UPI payments of up to Rs 2,000 in specified essential and low-margin sectors, including railways, telecommunications, insurance, petrol and diesel and agricultural inputs, will remain exempt from MDR. Customers using UPI for these smaller transactions will therefore not have to pay an additional MDR amount.
Will UPI Users Have to Pay MDR?
The introduction of MDR does not mean that UPI users will start paying a fee every time they make a digital payment. MDR is primarily a charge associated with merchant transactions, and banks have been directed to ensure that merchants do not pass the applicable MDR on to customers as a separate charge.
For ordinary users, UPI payments will therefore continue to function largely as before. There will be no monthly quota requiring users to pay once a certain number of free UPI transactions has been crossed, and users will not be charged a separate platform fee simply for using UPI.