UPI New Rules 2026: Merchant Charges, New Limits and What Changed

UPI New Rules 2026

UPI has been free for everyone since it launched — but 2026 has brought its biggest policy shift yet: NPCI has introduced merchant charges on certain UPI transactions. Beyond that, transaction limits have been raised for hospitals and tax payments, UPI Circle allows delegated payments for families, and UPI Lite X brings offline payments without internet. This guide covers every significant UPI rule change in 2026, what has stayed the same, and what each update means for you as a user or merchant.

Quick Summary: UPI Changes in 2026

The Biggest Change: UPI MDR from October 15, 2026

Since UPI launched in 2016, both users and merchants paid zero charges on all UPI transactions. That changes from October 15, 2026 — partially. The government has introduced a 0.4% MDR (Merchant Discount Rate) on person-to-merchant (P2M) UPI transactions above Rs. 2,000. For very large transactions, the MDR is capped at Rs. 300 for transactions of Rs. 75,000 and above. This charge is paid by the merchant, not the customer.

Crucially, P2M transactions up to Rs. 2,000 — which account for more than 95% of all P2M transaction volume — continue to attract zero MDR. NPCI data shows that 86% of P2M UPI transactions in August 2026 were below Rs. 500, and another 10% were between Rs. 501 and Rs. 2,000. This means the new charge affects only around 4% of UPI transaction volume by count.

The government has also clarified that the MDR cannot be passed on to customers. Banks and payment aggregators have been instructed to ensure merchants do not add a separate “UPI charge” to customer bills, with compliance monitored daily from October 15. RuPay debit card payments remain free regardless of transaction amount. P2P (person-to-person) UPI payments between individuals are also unaffected — they remain completely free.

Does This Affect You as a User?

For most users, nothing changes. You cannot be charged the MDR directly — the government has explicitly prohibited merchants from passing this cost on to customers. If you pay Rs. 3,000 to a merchant via UPI using your bank account, you pay exactly Rs. 3,000. The merchant absorbs the Rs. 12 MDR (0.4% of Rs. 3,000) on the backend.

The only scenario where you might notice an indirect effect is if small merchants — particularly thin-margin businesses — adjust their pricing for higher-value transactions over time. The government is monitoring this closely and has made clear that passing on the MDR as a line-item charge to customers is not permitted.

Does This Affect Merchants?

If you are a merchant, the 0.4% MDR applies to P2M UPI transactions above Rs. 2,000 from October 15. For a Rs. 10,000 payment via UPI, you pay Rs. 40 as MDR. For transactions above Rs. 75,000, the charge is capped at Rs. 300. Transactions up to Rs. 2,000 remain zero-MDR. GST at 18% applies on the MDR amount itself (not on the transaction) — for the Rs. 10,000 example, GST on the MDR would be Rs. 7.20. GST-registered businesses can claim input tax credit on this GST paid, subject to applicable conditions. If you use a payment aggregator (Razorpay, PayU, Cashfree), check their updated UPI pricing schedule, as they will pass through or absorb the MDR depending on your plan.

Higher UPI Limits for Tax, Hospitals, and Education

The standard UPI per-transaction limit of Rs. 1 lakh remains unchanged for P2P and general merchant payments. However, NPCI and RBI have raised the limit to Rs. 5 lakh per transaction for three specific categories: income tax and GST payments, hospital and medical bills, and educational institution fees. Previously, anyone paying a hospital bill or tax above Rs. 1 lakh had to either split the payment into multiple transactions or fall back on NEFT/RTGS. With the Rs. 5 lakh limit, a single UPI payment can now cover most tax dues and large medical bills. The higher limit applies automatically when paying verified merchants in these categories — you do not need to do anything differently.

UPI Circle: Let a Family Member Pay from Your Account

UPI Circle is a new NPCI feature that lets you delegate UPI payment access to someone else — a spouse, elderly parent, or trusted family member. You set a spending limit, and the delegate can make UPI payments from your linked bank account without needing your UPI PIN or phone. This is designed for households where one person manages finances but others need to make daily purchases. The primary user sees all transactions in real time and can revoke access at any time. To set it up, go to UPI Circle in your UPI app settings, add the delegate’s UPI ID, and configure a per-transaction or daily limit.

UPI Lite X: Pay Without Internet

UPI Lite X uses NFC (Near Field Communication) to allow offline UPI payments when there is no internet connection. You pre-load up to Rs. 2,000 into the UPI Lite X wallet while online. After that, you can tap your phone to an NFC-enabled terminal and pay up to Rs. 500 per transaction without any network. This addresses one of UPI’s most common failure points — poor signal at metro stations, crowded markets, and tier-2 city shops. UPI Lite X is available on select Android phones and supported apps. It is separate from the standard UPI Lite (which still requires a low-data connection) and is currently in broader rollout across Android devices.

International UPI: Now in 20+ Countries

Indian travellers can now use UPI to pay at merchants in over 20 countries, including the UAE, Singapore, France, the UK, Mauritius, Nepal, Bhutan, and Sri Lanka. Look for the UPI QR code or UPI acceptance mark at international merchants. Payment is deducted in rupees from your Indian bank account at the prevailing exchange rate. A small forex conversion fee typically applies — this varies by bank, so confirm before travelling. International UPI is available on Google Pay, PhonePe, and Paytm for eligible users and does not require a forex card or foreign currency account.

What Has NOT Changed in 2026

UPI remains free for bank-to-bank payments. Sending money to friends or family, paying a merchant directly from your bank account — all of this remains completely free. No transaction fees, no per-use charges. This applies regardless of transaction size (up to Rs. 1 lakh for P2P, Rs. 5 lakh for eligible merchant categories).

Zero MDR on bank-funded UPI payments to merchants. Merchants continue to pay nothing on standard UPI transactions where the customer pays via bank account. The zero-MDR policy that drove UPI’s mass adoption among kirana stores and small businesses remains intact and is government-protected.

No UPI user charges. Despite recurring rumours about UPI becoming paid, the government has repeatedly confirmed that end-user charges will not be introduced on bank-funded UPI. The 1.1% charge on PPI-funded merchant transactions is a backend settlement charge — it is not a charge levied directly on individual users at the time of payment.

UPI 123Pay for feature phones. The IVR-based UPI service remains active. Non-smartphone users can dial 08045163666 to make UPI payments without a smartphone or internet connection. This has not changed in 2026.

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Frequently Asked Questions

1. Is UPI now chargeable in 2026?
   For customers, no — you cannot be charged the MDR directly. From October 15, 2026, a 0.4% MDR applies to person-to-merchant UPI transactions above Rs. 2,000. This charge is paid by the merchant, not the customer. P2P payments and all transactions up to Rs. 2,000 remain completely free for everyone.
2. What is the new UPI transaction limit in 2026?
   The general UPI limit remains Rs. 1 lakh per transaction for P2P and standard merchant payments. For income tax, GST, hospital bills, and educational fees, the limit has been raised to Rs. 5 lakh per transaction. This higher limit applies automatically when paying verified merchants in these categories.
3. What is the UPI merchant charge — who pays it?
   From October 15, 2026, merchants pay a 0.4% MDR on P2M UPI transactions above Rs. 2,000. The charge is capped at Rs. 300 for transactions of Rs. 75,000 and above. GST at 18% applies on the MDR amount. Customers cannot be charged this MDR — the government has prohibited pass-through to end users and is monitoring compliance daily. Transactions up to Rs. 2,000 carry zero MDR.
4. What is UPI Circle and how does it work?
   UPI Circle lets you authorise a trusted person to make UPI payments from your bank account within a limit you set. Set it up in your UPI app under UPI Circle settings — add the delegate’s UPI ID and configure a spending limit. The delegate can then pay merchants from your account. You get real-time notifications and can revoke access anytime.
5. Can I use UPI without internet in 2026?
   Yes, via UPI Lite X. Pre-load up to Rs. 2,000 while online, then use NFC to tap and pay at NFC-enabled terminals with no internet. Each offline transaction is capped at Rs. 500. Available on select Android devices and supported UPI apps.

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