India’s new UPI Merchant Discount Rate (MDR) framework has triggered questions among people who regularly use apps such as PhonePe, Paytm, Google Pay and BHIM. With a 0.4% MDR being introduced for specified merchant payments above ₹2,000, many users are wondering whether the charge depends on the UPI app they use.

The key point is that MDR is linked to the type and value of the merchant transaction, not to a particular UPI app. The government has also clarified that customers making UPI payments will not have to pay MDR. Therefore, switching from one UPI app to another will not determine whether an eligible merchant transaction attracts MDR.

The revised framework is scheduled to take effect from October 15, 2026. Here is what users and merchants need to understand about how the new system will work.

Is MDR Limited to PhonePe or Paytm?

No. The new MDR framework is not a special charge imposed exclusively on PhonePe, Paytm or any other individual payment app.

UPI is an interoperable payment network operated by the National Payments Corporation of India (NPCI). Different UPI applications provide access to this common payment infrastructure. Under the new framework, MDR will apply to specified eligible person-to-merchant (P2M) transactions rather than being determined by which UPI application initiates the payment.

This means an eligible merchant payment made through PhonePe, Google Pay, Paytm, BHIM or another UPI application is governed by the same underlying MDR framework.

More importantly, UPI application providers have been expressly prohibited from imposing platform fees or hidden charges on customers under this framework.

When Will the 0.4% UPI MDR Apply?

Under the new rules, a standard MDR of 0.4% will apply to specified P2M UPI transactions exceeding ₹2,000.

The maximum MDR is capped at ₹300 per transaction. As a result, a ₹75,000 eligible transaction reaches the ₹300 ceiling, and payments above that amount will not attract an MDR higher than ₹300 under the standard rate.

For example, the standard 0.4% calculation would work like this:

These examples apply to eligible standard merchant transactions. Certain categories have separate concessional rates or exemptions.

Does the Customer Pay This Amount?

No. This distinction is crucial because describing the new rule simply as a “UPI charge above ₹2,000” can create the impression that money will automatically be deducted from the person making the payment.

According to the government, MDR is a charge within the merchant payment ecosystem and is not a fee imposed on customers. Banks have been advised to ensure that merchants do not pass the MDR cost on to consumers.

The MDR collected from eligible transactions is distributed among participants in the payment ecosystem, including banks, payment service providers and UPI application providers. The framework is intended to support areas such as payment infrastructure, cybersecurity, innovation and customer service.

Therefore, if you make an eligible ₹5,000 merchant payment, the calculated standard MDR may be ₹20, but that does not mean ₹20 should be added to your bill as a customer UPI fee.

What About Sending More Than ₹2,000 to Another Person?

Person-to-person payments remain completely outside the MDR framework.

If you send ₹3,000, ₹10,000, ₹50,000 or another permitted amount to a friend, relative or another individual through UPI, the payment will continue to be free irrespective of its value. The ₹2,000 MDR threshold applies to specified merchant transactions, not ordinary P2P money transfers.

The government says P2P transactions representing about 70% of total UPI transaction value will remain completely outside the MDR system.

Merchant Payments Up to ₹2,000 Will Remain Free

Another important protection applies to small-value purchases.

All P2M UPI transactions of ₹2,000 or less will continue to have zero MDR. The government estimates that more than 95% of P2M transaction volume falls within this threshold. Overall, approximately 96% of merchant transactions are expected to remain unaffected because they are either below ₹2,000 or qualify under the small-merchant zero-MDR framework.

Small merchants, including street vendors receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category, will also continue to receive zero-MDR treatment on qualifying transactions.

Some Sectors Have a Lower Flat MDR

Not every eligible payment above ₹2,000 will face the standard 0.4% rate.

Transactions exceeding ₹2,000 in specified essential and thin-margin sectors—including railways, telecommunications, insurance, fuel and agricultural inputs—will attract a flat ₹5 MDR per transaction.

Capital-market payments involving mutual funds, securities, stockbrokers and dealers have another structure: an MDR of 0.02%, capped at ₹300 per transaction.

Will Changing Your UPI App Avoid MDR?

Changing the UPI application will not turn an otherwise eligible merchant transaction into a free one. The determining factors are the transaction and merchant category, amount and applicable MDR rules—not whether the customer chooses PhonePe, Paytm, Google Pay, BHIM or another UPI app.

At the same time, customers themselves should not see a separate MDR or platform fee simply for using these UPI applications. The government’s framework specifically protects consumers from such charges.

What UPI Users Should Know Before October 15

The new MDR framework does not mean UPI is becoming a paid service for ordinary consumers. P2P transfers will remain free regardless of the amount, merchant payments of up to ₹2,000 remain outside MDR, and qualifying small merchants retain zero-MDR protection.

From October 15, 2026, the 0.4% MDR will apply only to specified merchant transactions above ₹2,000, subject to exemptions, concessional categories and a maximum ₹300 standard MDR per transaction.

So whether a customer opens PhonePe, Paytm, Google Pay, BHIM or another UPI app, the central principle remains the same: the MDR framework applies to eligible merchant transactions, while customers are not supposed to pay an MDR charge for using UPI.