UPI Charges Above ₹2,000: New 0.4% MDR Rule, Government Clarification and Congress Row
By: News Desk | 15 September 2026
New Delhi: India’s six-year experiment with completely free UPI merchant payments is set for a significant change from October 15, with the National Payments Corporation of India (NPCI) introducing a 0.4% Merchant Discount Rate (MDR) on specified person-to-merchant UPI transactions above ₹2,000.
The move has triggered a political dispute, with the Congress accusing the Centre of moving away from its earlier promise of keeping UPI free, while the government maintains that ordinary consumers will not be charged and that person-to-person payments will remain free irrespective of the amount.
The controversy has therefore shifted from whether UPI will remain free to a more specific question: who ultimately bears the cost of the new merchant-side charge?
What the New UPI Framework Actually Says
The Finance Ministry’s September 15 clarification states that UPI will remain completely free for person-to-person (P2P) transactions, regardless of the amount transferred.
Payments made to merchants up to ₹2,000 will also remain free. The government says transactions covered by the existing zero-MDR framework for small merchants will continue without MDR as well.
According to the government, approximately 96% of all person-to-merchant UPI transactions will remain unaffected, with MDR applying only to specified merchant transactions above ₹2,000.
For transactions that fall within the new levy, the standard MDR has been fixed at 0.4%, with a maximum charge of ₹300 for transactions of ₹75,000 and above.
That means the new system is not a blanket fee on every UPI payment.
The Crucial Difference: Customer Payment vs Merchant MDR
This distinction is at the centre of the controversy.
MDR, or Merchant Discount Rate, is charged within the payment ecosystem when a merchant receives a digital payment. The government says it is not a tax collected by the government or NPCI. Instead, the proceeds are distributed among participants such as banks, payment service providers and UPI application providers.
The Finance Ministry has also said banks have been advised to ensure that merchants do not pass the MDR cost on to customers. UPI applications are prohibited from imposing platform fees or hidden charges on users under the new framework.
So, formally, a customer paying ₹5,000 to a merchant through UPI is not supposed to see an additional ₹20 charge simply because the payment exceeds ₹2,000.
The economic question, however, is whether businesses absorb the MDR or attempt to recover it indirectly through pricing.
That is where the political argument begins.
Why Congress Is Calling It a U-Turn
Congress leaders have attacked the new framework as a departure from the government’s earlier position on free UPI transactions.
Leader of Opposition Rahul Gandhi criticised the move and alleged that the Centre was moving towards imposing a wider burden on digital payments. Congress president Mallikarjun Kharge also attacked the decision, while the party questioned whether merchant charges could ultimately feed into consumer prices.
Congress has also alleged that the policy represents a shift away from the government’s earlier commitment to keeping UPI free.
Those claims need to be separated from what has actually been notified.
The government has not imposed a general fee on individuals sending money through UPI. P2P transfers remain free, while the new MDR is targeted at specified merchant transactions above ₹2,000.
At the same time, it is factually correct that the system is moving away from the earlier zero-MDR model for a defined category of merchant payments.
That distinction is important because the political language surrounding the change can otherwise make it sound as though every UPI user will soon have to pay a transaction fee.
What Happens to a ₹5,000 UPI Payment?
Consider two different transactions.
If one person sends ₹5,000 to a friend or family member, it remains a P2P transaction and stays free.
If a customer pays a merchant ₹5,000, the transaction falls within the category for which the new 0.4% MDR can apply from October 15.
At 0.4%, the MDR on ₹5,000 would be ₹20.
But according to the government’s framework, that ₹20 is a merchant-side payment-system charge, not a ₹20 UPI fee that the customer is supposed to pay. Banks have been instructed to prevent merchants from passing the MDR directly to customers.
This distinction will become particularly important after October 15, when consumers begin encountering the new system in real-world transactions.
Why ₹2,000 Has Become the Political Flashpoint
The ₹2,000 threshold matters because high-value UPI transactions represent a relatively small share of merchant transactions but account for a much larger share of their monetary value.
Data cited in reporting on the government’s notification showed that only around 4% of P2M UPI payments in 2025-26 exceeded ₹2,000, although those transactions accounted for roughly two-thirds of the value of P2M payments.
This helps explain the government’s argument.
Most everyday low-value digital purchases will not be affected by the new MDR framework. But payments involving larger purchases can generate revenue for the payment ecosystem.
For example, a ₹20,000 merchant payment would attract an MDR of ₹80 at the 0.4% rate, while a ₹75,000 payment would reach the ₹300 cap.
For transactions above ₹75,000, the MDR remains capped at ₹300.
Some Essential Sectors Have a Different Structure
The framework also provides special treatment for several sectors where margins can be narrow or payments have a public-service character.
For qualifying transactions above ₹2,000 in sectors including railways, telecommunications, insurance, fuel and agricultural inputs, the MDR is set at a flat ₹5 per transaction rather than the standard 0.4% rate.
Capital-market related payments have a separate MDR of 0.02%, capped at ₹300.
Small merchants also retain zero-MDR protection under the specified framework. The government has said that QR-based small merchants receiving up to ₹1 lakh a month will remain covered by zero-MDR arrangements.
Why the Government Wants MDR
The central argument from the government and the payments industry is sustainability.
UPI has grown from a relatively new payment platform into one of the world’s largest real-time digital payment systems. Maintaining the network requires spending on technology, cybersecurity, fraud prevention, connectivity, settlement systems and infrastructure.
The government says the new framework is intended to create a sustainable revenue mechanism while protecting ordinary users and small merchants.
This is a significant change because UPI’s rapid expansion was built partly around a zero-MDR model that made digital payments particularly attractive to merchants.
The new approach attempts to preserve that advantage for small-value transactions while creating a revenue stream from selected larger merchant payments.
The Consumer Question Is Still Not Entirely Settled
The government’s position is clear: customers should not be charged the MDR.
But the broader economic question is more complicated.
A merchant facing an additional payment-processing cost has several choices. The business can absorb the expense, reduce other costs, negotiate with its payment provider, or attempt to incorporate the cost into its pricing.
The government has explicitly sought to prevent merchants from passing MDR directly to customers. Enforcement and market behaviour will therefore matter once the system becomes operational.
This is also why the political debate is unlikely to disappear simply because the formal charge is imposed on merchants rather than consumers.
UPI’s Next Phase
The change comes at a time when UPI has become deeply embedded in India’s everyday economy.
The system is now used for everything from small roadside purchases to large retail payments, utility bills, travel bookings and financial transactions.
The government says the new structure will keep P2P transfers completely free and around 96% of P2M transactions unaffected.
The Opposition, meanwhile, is focusing on the possibility that a merchant-side cost could eventually affect consumers through prices or other commercial practices. Congress has also framed the decision as inconsistent with the political promise surrounding free UPI.
Both parts of the debate can coexist with the actual mechanics of the policy: there is no blanket consumer UPI fee, but there is a new MDR on specified higher-value merchant transactions.
What Users Should Know Before October 15
For ordinary UPI users, the practical picture is relatively straightforward:
- Sending money to another person: remains free, irrespective of amount.
- Merchant payment up to ₹2,000: remains free.
- Specified merchant payment above ₹2,000: 0.4% MDR applies from October 15, subject to the framework and caps.
- MDR ceiling: ₹300 for transactions of ₹75,000 and above.
- Selected essential sectors: flat ₹5 MDR for qualifying transactions above ₹2,000.
- Small merchants covered by zero-MDR provisions: remain protected.
- Direct customer surcharge: the government says merchants must not pass the MDR to customers and UPI apps cannot impose hidden platform charges.
The Real “Wallet Row” Is About Who Pays
The UPI controversy is therefore less about a simple decision to “charge users” and more about the economics of maintaining India’s enormous digital-payment infrastructure.
The government is presenting the change as a targeted merchant-side MDR designed to make UPI financially sustainable without disturbing everyday users.
Congress is presenting it as a policy reversal that could ultimately create costs for citizens despite the formal protection against consumer charges.
The test will come after October 15, 2026, when the new MDR regime takes effect.
If merchants absorb the cost without changing prices, the immediate effect on consumers could remain limited. If businesses begin recovering the cost through pricing or other means, the debate over who ultimately pays for India’s digital-payment infrastructure will become considerably more consequential.
For now, one fact is clear: UPI is not becoming chargeable for ordinary person-to-person transfers, but the era of completely zero-MDR UPI merchant payments is ending for specified transactions above ₹2,000.
