UPI Fee Hike Coming in 2026: Why Credit Card-Linked UPI Payments Escape the New 0.4% MDR

Understanding the UPI Fee Structure: What Changes From October 2026?

Unified Payments Interface (UPI) is India’s most widely adopted digital payments system, allowing instant, account-to-account money transfers between users and merchants. For years, most UPI merchant transactions have been free of charge to the merchant—a major reason for its widespread acceptance, especially among small businesses.

Starting 15 October 2026, the government is revising the UPI fee structure by introducing a Merchant Discount Rate (MDR) on certain high-value transactions. However, there’s an important exemption: payments made via credit card-linked UPI—specifically RuPay credit cards and pre-sanctioned bank credit lines—will not attract this new MDR fee.

Which UPI Transactions Will Incur Fees?

Most everyday UPI merchant transactions will remain fee-free. The new fee applies mainly to higher-value, account-to-account merchant payments. Here’s a quick breakdown:

Note: Only about 4% of all UPI merchant transactions are expected to attract the MDR, as over 95% are below the ₹2,000 threshold.

What Counts as a Credit Card-Linked UPI Transaction?

A credit card-linked UPI transaction is a payment made via UPI, but the source of funds is a linked credit card (currently, RuPay credit cards and pre-sanctioned credit lines by banks). This is distinct from regular bank account debits and is specifically exempted from the upcoming 0.4% MDR fee.

Merchants accepting UPI payments via these credit lines will not have MDR deducted on such transactions, preserving fee-free acceptance even for higher-value payments.

Special Treatment for Key Sectors

Certain payment categories like railways, telecom, insurance, and fuel will have a flat MDR of ₹5 for payments above ₹2,000, regardless of transaction value. For capital market transactions—including investments in mutual funds or through stock brokers—the MDR is even lower at 0.02%, with a ₹300 per transaction maximum.

Small Merchants, P2PM Merchants and MDR Collection Fund

Small merchants and person-to-person merchant (P2PM) model merchants remain fully exempt from MDR fees. Additionally, the government has designated that 5% of all MDR collected will be allocated to a fund supporting UPI adoption among small merchants to encourage continued digital payment growth in this sector.

No Monthly Limit for Individual UPI Users

There is no monthly cap or quota for free UPI payments by individual users under the new regime. Everyday users can keep making an unlimited number of UPI payments without worrying about fees, provided their transactions remain under the applicable thresholds.

Timeline: When Do the Changes Take Effect?

• 15 September 2026: Government issues clarification on fee exemption for credit card-linked UPI payments.
• 15 October 2026: New MDR regime formally comes into force for applicable UPI transactions.

What Should Merchants and UPI Users Do Next?

1. Merchants: Know your transaction patterns. If you process mainly sub-₹2,000 UPI payments, nothing changes. For high-value transactions, be aware of the upcoming fees and consider promoting credit card-linked UPI as a zero-MDR alternative.
2. Investors/Traders: For capital market transactions, expect very low MDR costs—capped and lower than standard merchant transactions.
3. Everyday UPI Users: Transactions remain free in almost all day-to-day cases.
4. Small Businesses: Continue accepting UPI at zero cost and look for government support as part of the new MDR collection allocation.

Quick Example: Comparing MDR Impact

Conclusion

For most merchants and users, the UPI fee regime will remain business as usual. The key new factor is the exemption for credit card-linked UPI payments, which can help merchants who handle larger transactions avoid MDR charges. The upcoming regime aims to balance digital payments innovation, cost-sharing, and financial inclusion, particularly for small businesses and unique payment categories.