Personal transfers stay free as eligible Indian merchants begin paying processing fees

Personal transfers stay free as eligible Indian merchants begin paying processing fees

Last updated: September 23, 2026 | 05:05

Justin Varghese, Your Money Editor

Dubai: UAE-based Indians will continue using the Unified Payments Interface (UPI) without paying transaction fees when India’s new Merchant Discount Rate takes effect on October 15, 2026.

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The new charge applies to eligible merchants accepting UPI payments above Rs2,000. It does not apply to the customer making the payment.

This matters for NRIs who use UPI to shop during visits to India, settle bills, pay for investments or send money between Indian bank accounts. Person-to-person transfers, including payments to relatives, will remain free.

What changes from October 15?

India is introducing a Merchant Discount Rate, or MDR, of 0.4 per cent on selected person-to-merchant UPI payments above Rs2,000.

MDR is a payment-processing cost borne by the business accepting a digital transaction. It is distributed among participants in the payment chain, including banks, payment apps and other service providers.

The charge will be capped at Rs300 when the payment reaches Rs75,000. A transaction of exactly Rs2,000 will remain free because the MDR applies only when the value exceeds that threshold.

India’s Finance Ministry has also said merchants cannot pass the MDR to buyers. UPI app providers are prohibited from imposing a platform fee or another charge on customers making UPI payments.

9 Frequently Asked Questions (FAQs)

#1: How much will merchants pay?

UPI paymentMDRPaid by customerCost to eligible merchantRs2,000ZeroRs2,000ZeroRs3,0000.40%Rs3,000Rs12Rs10,0000.40%Rs10,000Rs40Rs50,0000.40%Rs50,000Rs200Rs75,000CappedRs75,000Rs300Rs100,000CappedRs100,000Rs300

The buyer pays only the purchase price in each example. The eligible merchant bears the processing cost through the payment-settlement system.

#2: Will customers face any UPI charge?

No. Union Finance Minister Nirmala Sitharaman has said the MDR is a charge between payment-service operators and will not fall on customers.

“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,” Sitharaman told ANI.

“It is a charge levied by service providers to improve the system and provide better service, not for small transactions. Moreover, it is a charge between operators; it will not be passed on to the consumer. The burden does not fall on the customer,” she added.

A customer buying an appliance in India for Rs50,000 will therefore pay Rs50,000. The merchant will receive the payment after the applicable Rs200 MDR is accounted for in the settlement process.

Businesses may consider processing expenses when setting their overall prices, as they do with rent, wages and card costs. But the framework does not permit them to add a separate “UPI fee” or “MDR charge” at checkout.

#3: Will transfers to relatives remain free?

Yes. Person-to-person, or P2P, UPI transfers will continue without charges for either the sender or the recipient.

This includes:

Sending money to parents, children or other relatives

Splitting a bill with friends

Transferring money between your own linked bank accounts

Receiving funds through a personal UPI ID

The Rs2,000 threshold does not apply to these personal transactions. A transfer to a relative does not attract MDR simply because its value exceeds Rs2,000.

Banks and NPCI can still impose daily security limits, usually ranging from Rs1 lakh to Rs5 lakh depending on the transaction category. These are risk controls, not charging thresholds.

#4: Does every shop have to pay MDR?

No. Liability depends on the merchant’s classification and the value of the payment.

Small vendors operating under NPCI’s person-to-person-merchant, or P2PM, category retain zero MDR. This category covers merchants receiving up to Rs1 lakh a month through UPI QR payments directly into their accounts.

A single sale above Rs2,000 will not remove this protection. The vendor’s overall merchant classification determines whether a charge applies.

Banks and payment-service providers will monitor incoming UPI payments. 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 receive the zero-MDR protection. Existing QR codes and payment soundboxes will continue working, with no need for replacement or re-registration.

#5: What about fuel, insurance, utilities?

Several essential and low-margin sectors will receive a concessional flat MDR instead of the standard 0.4 per cent rate.

Eligible payments above Rs2,000 for fuel, railways, telecom services and insurance will generally attract a flat Rs5 merchant charge. Payments of Rs2,000 or less remain at zero MDR.

The same Rs5 flat rate applies to public utility payments above the threshold, including electricity, municipal water and piped natural gas bills.

For instance, a customer paying a Rs3,000 petrol bill through UPI will still pay only Rs3,000. The petrol station bears the Rs5 processing charge.

Educational collections, including school and university fees, fall under a designated industry programme. The Finance Ministry’s FAQ says payments above Rs2,000 will receive flat-fee structures or capped rates, but it does not provide one universal charge for every educational transaction.

#6: Are subscriptions, auto-debits affected?

Automated recurring instructions made through UPI Mandates or AutoPay will not carry the newly prescribed MDR, according to the Finance Ministry.

This exemption covers scheduled utility bills, streaming subscriptions and recurring investments, including mutual fund contributions made through an automatic mandate.

A different rate applies when a customer initiates a capital-market payment using UPI. Payments to mutual funds, stockbrokers, securities dealers and investment platforms will carry an MDR of 0.02 per cent, capped at Rs300.

The financial institution or investment platform bears this cost. The person making the investment does not pay the MDR.

#7: What about UPI-linked RuPay credit cards?

The new 0.4 per cent framework covers payments made directly from a customer’s bank account to a merchant’s account.

Transactions funded through a linked RuPay credit card or a pre-sanctioned bank credit line operate under separate rules. They are not covered by the new direct bank-account MDR structure.

The UPI logo alone does not determine the processing charge. The funding source—bank balance, credit card or credit line—also matters.

#8: How can NRIs activate UPI with UAE number?

NRIs can link eligible Non-Resident External, or NRE, and Non-Resident Ordinary, or NRO, accounts to UPI using supported international numbers, including UAE numbers beginning with +971.

An NRI generally needs to:

Link the UAE mobile number to an eligible NRE or NRO account

Download a UPI app that supports international numbers

Complete the app’s verification process

Create or confirm a UPI PIN

Select the NRE or NRO account as the payment source

NPCI currently lists 16 banks that support international mobile-number linkage. These include State Bank of India, HDFC Bank, ICICI Bank, Axis Bank, Federal Bank, Canara Bank, Punjab National Bank, South Indian Bank and Yes Bank.

Supported applications include BHIM, PhonePe and selected banking apps. Both the bank and app must support international-number registration, while individual services remain subject to the bank’s terms and transaction limits.

The MDR framework does not impose a customer charge because the payer is an NRI, holds a non-resident account or uses a UAE mobile number.

#9: Does this apply when using UPI in UAE?

The new framework concerns payments processed through the Indian UPI system, but it should not be confused with exchange-rate or international-processing costs that may arise when UPI is used at a UAE merchant.

UPI is accepted at selected UAE businesses through arrangements involving NPCI International, Network International and Mashreq’s NEOPAY network.

NPCI International and Network International said in 2024 that UPI acceptance would be introduced progressively across Network International’s network of more than 200,000 payment terminals serving over 60,000 merchants. The participating businesses span sectors including retail, hospitality, transport and supermarkets.

Acceptance is not available at every UAE outlet. Customers should look for the BHIM UPI or participating network logo and check with the merchant before attempting a payment.

The app should display the amount in dirhams and rupees, together with the exchange rate and any applicable fee, before the customer approves the transaction. Any conversion or cross-border processing cost is separate from the Indian merchant MDR starting on October 15.

Why is India introducing a charge?

The government says UPI needs a predictable funding model to support infrastructure, cybersecurity, fraud prevention, innovation and customer service.

The system processed 2,451 crore transactions worth Rs29.9 lakh crore in August 2026 alone, according to the Finance Ministry. Industry estimates cited by the ministry put the annual cost of operating UPI infrastructure, server capacity, fraud-prevention systems and bank technical support at about Rs20,000 crore.

During the 2025-26 financial year, UPI handled more than 24,161 crore transactions worth around Rs314 lakh crore. The government said it accounted for 85 per cent of India’s digital-payment volume, with 703 banks connected to the platform by March 2026.

Reuters reported that the payer’s bank will receive the largest portion of the MDR. The remainder will be divided among the merchant’s bank, the payment app and other service providers involved in completing the transaction.

The government also plans to direct 5 per cent of total MDR collections into a fund supporting UPI acceptance among smaller merchants, particularly in rural areas and smaller towns. The detailed structure is to be finalised in consultation with the Reserve Bank of India.

Why decision faces criticism?

Former NITI Aayog vice-chairman Rajiv Kumar has urged the government to retain zero-MDR UPI payments for at least a few more years.

Kumar told the Press Trust of India that UPI should be treated as a public good because its wider benefits outweigh the estimated Rs20,000 crore annual cost of maintaining the infrastructure.

“Their overall benefits well far outweigh the cost of Rs20,000 crore that the public exchequer has to bear for maintaining the UPI infrastructure,” he said.

Kumar noted that about 96 per cent of merchant UPI transactions by volume fall below Rs2,000. Yet payments above that threshold account for nearly 66 per cent of the value, raising concern that some businesses could encourage cash payments to avoid the charge.

The disagreement centres on whether introducing a merchant cost could slow digital-payment adoption. It does not change the government’s stated position that customers will continue using UPI without transaction fees.

What should UAE NRIs do now?

Check the final amount before entering the UPI PIN

Refuse a separate MDR or UPI processing fee added to the bill

Confirm whether a payment request is from a person or registered merchant

Keep the app and linked mobile number updated

Justin VargheseYour Money Editor

Justin is a personal finance author and seasoned business journalist with over a decade of experience. He makes it his mission to break down complex financial topics and make them clear, relatable, and relevant—helping everyday readers navigate today’s economy with confidence. Before returning to his Middle Eastern roots, where he was born and raised, Justin worked as a Business Correspondent at Reuters, reporting on equities and economic trends across both the Middle East and Asia-Pacific regions.