From October 15, 2026, person-to-merchant UPI payments above ₹2,000 attract a 0.4% fee. The change ends the zero-MDR era that made UPI free at the checkout, while everyday small payments stay exempt.
UPI processed 24.5 billion transactions worth ₹29.8 lakh crore in August 2026. Since January 2020, a zero-fee policy drove adoption, but the system needed ₹20,000–20,700 crore a year against a ₹2,000 crore government subsidy.
Only standard P2M above ₹2,000 is charged 0.4%. Payments up to ₹2,000, person-to-person transfers, AutoPay, and small merchants receiving up to ₹1 lakh a month stay free. Essential sectors pay a flat ₹5.
A finance committee warned subsidies covered only 11% of costs. Parliament amended the Payment and Settlement Systems Act in August 2026, a September 14 gazette notification lifted zero-MDR protection above ₹2,000, and NPCI issued operating rules the next day.
The fee is not a single pool. Issuing banks receive 16 bps, acquiring banks and aggregators 12 bps, payer apps 8 bps, and PSP banks 4 bps. Platforms that own both the app and merchant rails can capture 20 bps on closed-loop transactions.
JPMorgan estimates immediate annual MDR revenue at ₹17,000 crore, with other estimates at ₹15,000–18,000 crore and a possible ₹22,000 crore by FY28. Banks alone could gain ₹16,000–17,000 crore per year.
The government says roughly 95–96% of person-to-merchant volume will remain uncharged because small-ticket payments dominate. The new fee is aimed at the top 4% of high-value commercial throughput, not everyday purchases.
Paytm can earn from both app and merchant rails; analysts estimate hundreds to over ₹1,000 crore in annual MDR revenue. Pine Labs’ enterprise-heavy profile could add roughly ₹155–160 crore, about 20% of FY28 EBIT. MobiKwik shares rose nearly 5%.
Opposition leaders, petrol dealers, and retail groups have protested. Merchants could split a ₹4,000 bill into two ₹2,000 payments or ask customers to pay personal QR codes, staying free. A Supreme Court PIL challenges the fee, and competition may push realized rates lower.
The change turns India’s massive payment volume into a legal revenue stream while keeping most small payments free. Read the full analysis for granular brokerage estimates, corporate impacts, and the legal fight.
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