New UPI fee framework spares everyday employee payments and salary transfers

The National Payments Corporation of India (NPCI) has introduced a revised Unified Payments Interface (UPI) Merchant Discount Rate (MDR) framework that will come into effect on October 15, 2026, bringing charges to a limited segment of high-value merchant transactions while leaving most consumer payments untouched.

Under the new framework, a 0.4% MDR will apply to merchant UPI transactions above Rs 2,000, with the fee payable by merchants and capped at Rs 300 per transaction. According to NPCI, person-to-person (P2P) transactions, including salary transfers, remittances and other individual payments, will continue to remain free.

The move marks a targeted shift in UPI monetisation, focusing on higher-value merchant payments while preserving the zero-cost experience for the vast majority of users.

Personal transfers remain outside the MDR net

According to NPCI's framework, the new charges apply only to eligible merchant transactions and cannot be passed on to consumers.

The government has also stated that UPI application providers will not be allowed to impose platform fees or hidden charges linked to the MDR framework. Banks have been advised to ensure merchants do not recover the fee from customers.

For employees and individual users, the key takeaway is that salary payments, peer-to-peer transfers, rent payments and remittances made between individuals remain outside the MDR structure.

Key provisions include:

• 0.4% MDR on merchant UPI transactions above Rs 2,000
• Maximum charge capped at Rs 300 per transaction
• P2P transactions remain free
• Consumers cannot be charged the MDR by merchants
• UPI app providers cannot levy additional platform fees linked to MDR

Why NPCI introduced the new framework

NPCI said revenue generated through the revised MDR framework will support investments in:

• Infrastructure resilience
• Cybersecurity
• Fraud prevention
• Innovation
• Customer service enhancements

A narrowly targeted fee structure could create sustainable payment ecosystem revenues while preserving the accessibility that drove UPI's widespread adoption.

Exemptions protect small merchants and rural transactions

The revised framework includes several exemptions aimed at protecting smaller businesses and essential services.

According to details released around the framework:

• Small merchants collecting up to Rs 1 lakh per month through UPI QR codes remain exempt
• UPI QR payments in rural and semi-urban areas remain free
• Essential services such as railways, telecom, fuel and insurance will attract a flat Rs 5 fee on transactions above Rs 2,000
• Capital market transactions, including mutual funds and stockbroking, will attract a lower 0.02% MDR, capped at Rs 300

NPCI has also earmarked 5% of MDR collections for a dedicated fund intended to expand UPI acceptance among small merchants.

UPI growth highlights why the fee targets a small segment

According to Ministry of Finance data cited in reports, UPI processed 24,161.69 crore transactions worth around Rs 314 lakh crore in FY2025-26, compared with 1.78 crore transactions worth Rs 0.07 lakh crore in FY2016-17, the year the platform was launched.

The number of banks connected to UPI increased from 44 to 703 during the same period.

Government data shows:

• 63% of transaction volume comes from person-to-merchant (P2M) payments
• 37% comes from P2P transactions
• Around 86% of P2M transactions are below Rs 500
• About 59% of P2P transactions are below Rs 500
• Only 4% of P2M transactions exceeded Rs 2,000 in FY2025-26

However, those higher-value merchant payments accounted for nearly two-thirds of total UPI payment value, making them the primary focus of the revised MDR framework.

Payments ecosystem enters a new phase

The revised MDR model creates a new revenue stream for banks and payment providers while preserving free access for most consumers and employees. Industry experts noted that the long-term impact will depend on transaction volumes, operational efficiency and the ability of payment firms to expand value-added financial services.

As India’s digital payments ecosystem continues to scale, the new framework signals an effort to balance infrastructure funding requirements with the affordability and convenience that have made UPI one of the world's largest real-time payment networks.