From 15 October 2026 UPI acquires a merchant-side processing fee — the Merchant Discount Rate (MDR). The core rule is simple: 0.4% on payments from Rs2,000 to merchants, paid by the merchant, with nothing added at the customer's end. Transfers to relatives and between the user's own accounts stay entirely free. For UAE-based Indian expats using UPI via NRE/NRO accounts, the day-to-day pattern does not change.
What launches on 15 October
According to India's Finance Ministry and the National Payments Corporation of India (NPCI), from 15 October 2026 a Merchant Discount Rate applies to person-to-merchant (P2M) UPI payments above Rs2,000. The rate is 0.4%, capped at Rs300 — the cap is reached at Rs75,000. A payment of exactly Rs2,000 remains free because MDR applies only above that value.
MDR is an in-chain cost: it is split between the payer's bank, the merchant's bank, the payment app and other participants. Reuters reports that the payer's bank takes the largest share. The government will also direct 5% of MDR collections into a fund supporting UPI acceptance among small merchants, particularly in rural areas and smaller towns; the detailed structure is being finalised with the Reserve Bank of India.
The key point: the customer pays nothing
Speaking to ANI on the new framework, Union Finance Minister Nirmala Sitharaman was explicit: MDR is a charge between payment-service operators and will not be passed on to the customer. "It does not apply to transactions below Rs2,000. It is neither a tax nor a cess; the funds will not be deposited into the Consolidated Fund of India," ANI quotes her as saying. Merchants are barred from adding a separate 'UPI fee' at checkout; UPI apps are barred from charging a customer platform fee.
An example. A buyer pays Rs50,000 for an appliance in India. They transfer exactly Rs50,000 — the Rs200 MDR (0.4% × Rs50,000) is deducted from the merchant during settlement. From Rs75,000 upwards MDR does not grow further — the Rs300 cap kicks in.
What stays free
Person-to-person (P2P) UPI transfers — to relatives, friends or to your own linked account — remain free for both parties. The Rs2,000 threshold does not apply here: a transfer to a relative of any size does not attract MDR. Banks and NPCI keep daily limits (typically Rs1 lakh to Rs5 lakh) as risk controls, not pricing.
Small vendors in the P2PM category — those receiving up to Rs1 lakh a month through UPI QR straight into the account — retain zero MDR. A single sale above Rs2,000 does not push a vendor out of the category: it is the overall classification that matters. Banks and payment providers monitor inflows: a merchant receiving more than Rs1 lakh a month for three consecutive months can be moved from the exempt P2PM category to the commercial P2M category. Small vendors do not require GST registration to keep the zero-MDR protection — existing QR codes and 'soundbox' terminals keep working, no replacement or re-registration needed.
Sector exemptions: fuel, utilities, railways, insurance
Several essential, low-margin sectors get a flat Rs5 per payment above Rs2,000 instead of 0.4%. That covers fuel, railways, telecom services and insurance, plus public utility payments — electricity, municipal water and piped natural gas. Payments of Rs2,000 or less remain zero-MDR.
An example: paying Rs3,000 for petrol via UPI, the customer transfers exactly Rs3,000 and the petrol station bears the Rs5 MDR. Education (school and university fees) sits under a designated industry programme: the ministry's FAQ says payments above Rs2,000 will use flat-fee structures or capped rates, without a single universal rate.
Auto-debits and investments
Automated recurring instructions through UPI Mandates and AutoPay — scheduled utility bills, streaming subscriptions, systematic mutual-fund contributions — are exempt from the new MDR. That matters for anyone who has already set up recurring debits.
A separate rate applies to capital-market payments. UPI top-ups to mutual funds, broker accounts and investment platforms carry MDR of 0.02%, capped at Rs300. The financial institution or platform bears this cost — the investor pays nothing on top of the invested amount.
UPI-linked RuPay credit cards — a different rule
The new 0.4% framework covers payments made directly from a customer's bank account to a merchant. Transactions funded via a linked RuPay credit card or a pre-sanctioned credit line operate under separate rules and are not covered by the new direct-bank MDR. The UPI logo on the app alone does not determine the rate — the funding source (bank balance, credit card or credit line) does.
What it means for UAE-based NRIs
For most Indian expats in the UAE the everyday pattern does not change. Transfers to relatives, moves between one's own NRE/NRO accounts, and merchant purchases in India during visits carry no fee for the customer.
To activate UPI from the UAE: link an NRE or NRO account to your international number (including +971), install a supported app, complete verification and set a UPI PIN. According to NPCI, 16 Indian banks now support international-number linkage — among them State Bank of India, HDFC Bank, ICICI Bank, Axis Bank, Federal Bank, Canara Bank, Punjab National Bank, South Indian Bank and Yes Bank. Compatible apps include BHIM, PhonePe and selected banking apps. Limits and terms per account are set by the issuing bank. For anyone running regular UAE↔India flows, UPI is not the only rail — keep local banking in shape too, starting with a personal or corporate bank account in the UAE.
UPI inside the UAE
UPI also works inside the UAE, at the merchants where NPCI International's partner programme has been rolled out through Network International and Mashreq's NEOPAY network. Network International and NPCI International said acceptance is being scaled progressively across a base of more than 200,000 payment terminals and over 60,000 merchants; sectors include retail, hospitality, transport and supermarkets. Acceptance is not universal — look for the BHIM UPI or partner-network logo and check with the merchant. When paying, the app must show the amount in dirhams and rupees, the rate and any applicable fee before you approve. India's 15 October MDR does not apply to these cross-border transactions — that is a separate layer over standard FX-processing costs. The UAE's domestic rail is developing in parallel: the national UAE payment card Jaywan handles local operations, leaving the India corridor to UPI.
Why India is introducing MDR
The ministry's case: UPI needs a predictable funding model — for infrastructure, cybersecurity, fraud prevention, innovation and customer support. In August 2026 alone the system processed 2,451 crore transactions worth Rs29.9 lakh crore; across FY 2025-26 it handled more than 24,161 crore transactions worth about Rs314 lakh crore and accounted for 85% of India's digital-payment volume, with 703 banks connected to the platform by March 2026. Industry estimates cited by the ministry put the annual cost of running UPI infrastructure, servers, fraud prevention and bank technical support at about Rs20,000 crore.
Not everyone agrees. Former NITI Aayog vice-chairman Rajiv Kumar told the Press Trust of India that zero-MDR UPI should be retained for a few more years: "Their overall benefits well far outweigh the cost of Rs20,000 crore that the public exchequer has to bear for maintaining the UPI infrastructure," PTI quotes him. Kumar noted that 96% of merchant UPI transactions by volume are below Rs2,000 but payments above the threshold account for nearly 66% of value, raising concern that some businesses may nudge customers to cash to avoid the charge.
What UAE businesses and NRIs should do now
- Companies with an Indian entity or distributor. Check with your acquirer/PSP which share of incoming UPI runs through a P2M account above Rs2,000, and plug 0.4% into unit economics. For fuel, insurance and utilities, count Rs5 flat per payment above the threshold.
- Finance and HR teams. For regular India settlements and payouts, confirm UPI Mandates and AutoPay stay MDR-free — do not shift recurring debits to one-off P2M payments.
- UPI investors. Verify in the app that the 0.02% (capped Rs300) MDR on fund and broker top-ups is borne by the institution and does not appear in the investor's confirmation.
- NRI employees at UAE-based companies. Make sure UPI is active on your current NRE or NRO account, your +971 number is linked and the app is up to date. When paying in India, refuse any 'UPI fee' added at checkout. When paying via a UPI terminal in the UAE, verify the rate and any cross-border fee before you confirm.
Bottom line
15 October 2026 is a milestone for UPI: the system gets a predictable funding source through MDR for the first time since 2020. The rate is low — 0.4% capped at Rs300; sensitive segments (fuel, utilities, insurance, railways) sit on a flat Rs5; the customer still pays nothing; transfers to relatives and between one's own accounts remain free. For UAE-based Indian expats and companies running the India corridor the outlook is predictable: no basic-practice overhaul is needed, but the P2M perimeter and NRE/NRO/UPI-on-+971 activation are worth checking before 15 October.
This material is for information only and is not financial or legal advice. MDR rates, caps and application are set by India's Finance Ministry, the Reserve Bank of India and NPCI and may change. Account-level terms and limits should be confirmed with your issuing bank.
