UPI New Rules 2026: 0.4% Merchant Charge After Diwali, Do You Pay?

UPI New Rules 2026

UPI has been free for everyone since it launched — but 2026 has brought its biggest policy shift yet: NPCI has announced merchant charges on certain UPI transactions, to start after Diwali on a date that is yet to be notified. 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 the UPI changes announced in 2026, what has stayed the same, and what each update means for you as a user or merchant. Merchant-charge details are checked against NPCI and PIB documents as of 23 October 2026.

Quick Summary: UPI Changes in 2026

The Biggest Change: UPI Merchant Charges (MDR) After Diwali

Since UPI launched in 2016, both users and merchants paid zero charges on all UPI transactions. That is set to change, partially. NPCI’s published framework brings a 0.4% MDR (Merchant Discount Rate) on person-to-merchant (P2M) UPI transactions above Rs. 2,000. For 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.

When does it start? NPCI’s earlier FAQ (15 September 2026) said the framework would take effect from 15 October 2026. On 13 October 2026, NPCI’s UPI and Services Steering Committee decided that, keeping the festive season in mind, the MDR will be implemented “immediately post Diwali at a date to be notified separately”. As of 23 October 2026 we have not found the final date, so do not treat 15 October as the start date.

Crucially, P2M transactions up to Rs. 2,000 — which account for more than 95% of all P2M transaction volume — continue to attract zero MDR. The Ministry of Finance says the MDR will apply to only about 4% of merchant transactions, so about 96% are unaffected.

The Ministry of Finance says banks have been advised to ensure merchants do not pass MDR on to customers, and UPI apps are prohibited from imposing platform fees or hidden charges. P2P (person-to-person) UPI payments between individuals are free irrespective of amount, and UPI AutoPay mandates carry no MDR.

Other rates in the framework: for transactions above Rs. 2,000 in sectors such as railways, telecom, insurance, fuel and agricultural inputs, the MDR is a flat Rs. 5 per transaction. Payments to mutual funds, stockbrokers and securities dealers carry an MDR of 0.02%, capped at Rs. 300. Small merchants, including street vendors, receiving up to Rs. 1 lakh a month through UPI QR codes keep zero MDR.

Sources: PIB, Ministry of Finance release “UPI Continues to Remain Free for Peer to Peer Transactions and 96% of Merchant Transactions” (15 September 2026); NPCI FAQs on MDR on select UPI P2M transactions (15 September 2026); NPCI press note “UPI MDR on Select Merchant Transactions Shall be Implemented Post Diwali” (13 October 2026)

Does This Affect You as a User?

For most users, nothing changes. You cannot be charged the MDR directly — merchants cannot pass 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. NPCI’s FAQ says merchants cannot pass the MDR on to customers and that consumers pay only the posted price.

Does This Affect Merchants?

If you are a merchant, the 0.4% MDR is set to apply to P2M UPI transactions above Rs. 2,000 once NPCI notifies the start date. NPCI’s FAQ gives these examples: Rs. 2,000 pays Rs. 0, Rs. 3,000 pays Rs. 12, Rs. 50,000 pays Rs. 200, and Rs. 75,000 or more pays a fixed Rs. 300. The MDR is paid by the merchant to its acquiring bank. Small merchants receiving up to Rs. 1 lakh a month through UPI QR codes get zero MDR, but a merchant whose monthly credits stay above Rs. 1 lakh for 3 months in a row moves out of that category. We did not find an official statement on GST on the MDR, so check with your bank or payment provider.

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 stays free for individuals. Sending money to friends or family is free irrespective of amount, and NPCI says UPI services continue without any cost to consumers. When you pay a merchant, you pay only the posted price.

Zero MDR on payments up to Rs. 2,000. P2M payments up to Rs. 2,000 carry no MDR, and small merchants receiving up to Rs. 1 lakh a month through UPI QR codes keep zero MDR.

No UPI user charges. The Ministry of Finance says the MDR “is not a charge on customers making UPI payments”.

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. NPCI has announced a 0.4% MDR on person-to-merchant UPI transactions above Rs. 2,000, to start after Diwali on a date to be notified. This charge is paid by the merchant, not the customer. P2P payments and merchant payments up to Rs. 2,000 carry no charge.
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?
   After NPCI notifies the start date (after Diwali), merchants will pay a 0.4% MDR on P2M UPI transactions above Rs. 2,000, capped at Rs. 300 for Rs. 75,000 and above. Some sectors such as railways, telecom, insurance and fuel pay a flat Rs. 5 above Rs. 2,000. Customers cannot be charged this MDR. 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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