India’s Unified Payments Interface will implement a 0.4% merchant discount rate for transactions above Rs 2,000, shifting the free model for larger payments and prompting merchants to evaluate costs relative to card payments.
India’s Unified Payments Interface will no longer be entirely free for merchants in every case, after the National Payments Corporation of India said a merchant discount rate of 0.4% will apply to eligible person-to-merchant payments above Rs 2,000 from 15 October 2026. Customers will not pay the charge, but merchants will, and the fee will be capped at Rs 300 a transaction.
The change matters most for larger UPI payments. On a Rs 5,000 transaction, the merchant would pay Rs 20; on a Rs 50,000 payment, the cost rises to Rs 200. Once a transaction reaches Rs 75,000, the Rs 300 ceiling kicks in. According to reporting by Mint, the new levy is aimed only at select merchant payments, while low-value UPI transactions below Rs 2,000 and person-to-person transfers remain outside the framework.
Even with the new charge, UPI is still likely to remain cheaper for many businesses than card acceptance. Debit cards are governed by Reserve Bank of India rules introduced in December 2017, which set different merchant discount rate caps depending on merchant size and acceptance channel. For small merchants with annual turnover of up to Rs 20 lakh, the ceiling was 0.40% for physical point-of-sale and online payments, and 0.30% for QR-based card payments, with a cap of Rs 200 per transaction. For other merchants, the limits were higher.
Credit cards remain the most expensive option in many cases because their acceptance fees are commercially negotiated rather than fixed by a single RBI-wide ceiling. That means the final cost can vary by card network, issuing bank, acquiring bank, payment processor and the merchant’s business arrangement. As a result, merchants can face materially different charges even when the customer is paying through the same basic card rail.
The broader picture is that UPI is moving from a fully zero-cost model for merchants in some higher-value transactions to one that still looks comparatively inexpensive beside many card-based alternatives. Mint also reported that credit card-linked UPI payments are exempt from the new merchant levy, and that the policy keeps zero MDR in place for small merchants and most low-value payments. For merchants, the practical question now is not whether UPI is free, but how its cost compares with debit and credit card acceptance across different transaction sizes.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
