UPI transactions will no longer be free. How much charge will be levied on which transaction? Who will pay it? Who will get the money? How will charges be applied to UPI transactions in Mutual Fund SIPs and Demat accounts? Who will pay for them? You will get all the details in this post.
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| New UPI Charges 2026 |
On 15th September 2026, NPCI announced that charges will now be levied on UPI transactions and the name given to this charge is Merchant Discount Rate (MDR). These charges will be applicable from 15th October 2026.
Now the biggest clarification in this is that there will be no charge on our Person-to-Person transactions. For example, if I sent Rs.5,000 to a friend, or if I did a transaction of Rs. 5,000, Rs.10000, Rs.15,000, or even Rs.1 lakh to my aunt, uncle, etc. - there will be no charge on such Person-to-Person transactions. That means this charge will be levied only on Merchant transactions. When we buy something, whether online or offline, we will not bear this charge. The merchant will bear this charge. That means the shopkeeper, the e-commerce platform, will bear this charge.
UPI Transaction Charges
How much will this charge be? This charge is 0.4% of the transaction value. For example, if you bought something online for Rs. 10,000, 0.4% of it is Rs. 40. This Rs. 40 will have to be borne by the e-commerce platform. You don't have to pay it from your own pocket. Similarly, if you go to a shopkeeper to buy something, in that case also you don't have to bear these charges. Apart from this, there is one more limit - there is no charge of any type on transactions up to Rs. 2,000. Whether you buy something online or even if you buy something from a merchant, there will be no charge on it. But if it goes even Rs. 1 above Rs. 2,000, then charges will be levied on the entire Rs. 2,001 at 0.4%.
Transactions Limit
But after this, an upper cap has also been given. No more than Rs. 300 will be charged as a transaction fee in any case. That means if we did a transaction of more than Rs. 75,000, let's say a transaction of Rs. 1 lakh, then in that case also the merchant has to pay a maximum of only Rs. 300.
But we all know that whenever such a transaction happens, when we go to a merchant or a shopkeeper, he tells us to please do a cash transaction. So a big concern that is emerging here is whether this will lead to more cash transactions, or people may try to split large transaction values into smaller ones, like asking you to do multiple transactions or asking you to transfer money to someone else's account instead of his account. So you might feel a hassle when you are doing a transaction. You might have to do multiple transactions, or you might be asked for cash. The e-commerce platforms where we have become so used to getting discounts or where a platform fee was charged, they might include something extra in it. For example, you bought something from Amazon or Flipkart. You were getting a discount of Rs. 100 there. Now if this fee of Rs. 40 is also being charged, then that platform may now give you a discount of only Rs. 60. Because all these platforms and shopkeepers have to recover that charge from somewhere.
Apart from this, extra limits have been applied in some cases. For example, if there is a small merchant, a category has been created for them called Person to Person Merchant. That means such merchants whose receipts through UPI are only up to Rs. 1 lakh per month. Their income through UPI is not more than that, in that case also the merchant will not have to pay any transaction charge. For example, if it's a vendor from whom you buy vegetables, or some other small vendor from whom you buy something, and his UPI receipts are not more than Rs. 1 lakh per month, then he also does not have to pay any charge. Then there are some of our essential services, like railways, telecom, insurance, fuel when we purchase petrol and diesel, utility bills like our electricity bill, water bill, education when we pay school fees, or when we buy something for agriculture. In all these essential services, there is a flat fee of Rs. 5. No merchant has to pay more than that. When we do AutoPay in UPI, which are recurring mandates, like we take Netflix, buy a Prime membership, or any other service that we pay for every month where we have set up a UPI mandate, there are no charges of any type on that.
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But here there is one category that many people will think about. When we purchase mutual funds and stocks. If we transfer money via UPI, will there be a charge on it or not? Yes, there will be a charge here, but its value has been kept very low. It has been kept quite low. Instead of the standard charge of 0.4%, here a charge of 0.02% will be levied and its upper limit has also been kept at Rs. 300 only. But who will pay this? Here you will not pay. In the case of mutual funds, the AMC, the mutual fund company, will pay it. If you are transferring money to stocks, if you transfer money to your Demat account via UPI, then the broker will have to pay this money. Of course, he will not pay it from his own pocket, so from where will he recover this money? So it's possible that he may increase his brokerage charge or his AMC.
Now let's talk about how many transactions are there on which these charges are going to be levied. If we look at it volume-wise, then 96% of our transactions are less than Rs. 2,000 by volume. So there will be no transaction charge on them. But if we look at it value-wise, then 67% of our total transactions become those on which charges are going to be levied.
Now another point comes up - this money that is being collected, for example, we took an example of Rs. 10,000, on which the merchant will have to pay Rs. 40, so where will these Rs. 40 finally go? So here the Finance Ministry has given a clarification that this money will be distributed among all the participants of the entire UPI system. So let's assume Rs. 100 is collected, then out of that Rs. 100, 40% of the money, i.e., Rs. 40, will go to the customer's issuing bank. Suppose you did your transaction through HDFC Bank, which was the bank behind your UPI app, then 40% will go to HDFC Bank. After that, the merchant's acquiring bank, i.e., suppose you did a transaction at a shopkeeper and his bank was Axis Bank and he received the money in that Axis Bank, then 30% of the money will go to that acquiring bank. Then the third party is the UPI app. Suppose I made this payment using PhonePe, then 20% of the money will go to such a UPI app. Then the fourth party is the UPI app's bank, we call the Payment Service Provider Bank - PSP Bank. Suppose that UPI bank is Yes Bank, then 10% will go to Yes Bank.
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Now mutual funds and stocks may need a little more clarification. If we transfer, say, Rs. 1 lakh to our Demat account for stocks, then at 0.02% it becomes Rs. 20. Although this Rs. 20 has to be borne by the stockbroker only, he will recover this money from somewhere else in some other form, maybe he will increase the brokerage.
Similarly, if we do a Lumpsum investment in a mutual fund, if we put Rs. 1 lakh, then that Rs. 20 has to be borne by the AMC only. But the good thing here is that when we do a SIP, we set up an auto-mandate. Money is automatically debited from our bank. In such cases, whether it is a UPI mandate or money is being debited directly from your bank automatically, there will be no UPI charges on this. Many people are confused about these new UPI rules. They will get some clarification.
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