Having become the backbone of India’s daily commerce, UPI is now poised for its next big leap: from a free payments platform supported by government subsidy, to a self-sustaining system built to further expand digital payments. Recently, the central government notified a Merchant Discount Rate (“MDR“) of 0.4% on UPI person-to-merchant transactions above INR 2,000, effective from 15 October 2026, a modest charge for a system that is reshaping how millions of people transact.
This charge, notably, is selective. Ordinary person-to-person UPI transfers remain entirely free, no matter the amount. The charge applies only to merchant payments above INR 2,000. Thin-margin sectors such as railways, telecom, insurance, fuel, and agricultural inputs, get a flat charge of INR 5 per transaction and capital market transactions get their own bracket at 0.02% per transaction, capped at INR 300.
The government has also clarified that the MDR is not a tax and does not go to the government at all. It is meant to be distributed among banks, payment app providers and other participants who keep the digital payments ecosystem running covering costs of infrastructure maintenance. Brazil has already walked this exact road with its payments platform called PIX, which has carried a merchant fee since its launch in 2020, and their digital payments system has thrived on it.