UPI Charges Explained: What Changes for Fuel, Phone Purchases and Restaurant Bills

Unified Payments Interface (UPI) has become a part of everyday life in India, with people using it to pay restaurant bills, purchase smartphones, buy groceries and refuel their vehicles. However, a revised merchant discount rate (MDR) framework has raised questions about whether customers will now have to pay an additional fee for using UPI. The revised framework, scheduled to take effect from October 15, 2026, does not introduce a general transaction fee for UPI users. Instead, it changes the way certain merchant transactions are charged within the digital payments ecosystem. Person-to-person UPI transfers will continue to remain free.

Under the new framework, eligible merchant transactions above ₹2,000 will generally attract an MDR of 0.4%. The charge is applied within the merchant payment ecosystem and is not intended to be separately collected from customers. For transactions of ₹75,000 or more, the MDR will be capped at ₹300. This means that customers paying large bills through UPI should not automatically assume that they have to pay an additional 0.4% on top of the purchase price. For instance, if a customer has a restaurant bill of ₹6,000 and pays through UPI, the payment remains ₹6,000. At the applicable 0.4% rate, the merchant-side MDR would amount to ₹24, but that does not mean the customer has to pay ₹6,024 as a mandatory UPI fee.

A similar situation applies when purchasing an expensive electronic item. If a smartphone costs ₹30,000 and the customer chooses UPI as the payment method, the applicable merchant-side MDR at 0.4% would be ₹120. The customer, however, would still pay the purchase price of ₹30,000 rather than automatically paying an additional ₹120 as a UPI transaction charge. Fuel payments have been given separate treatment under the revised framework. Eligible fuel transactions above ₹2,000 will attract a flat MDR of ₹5 instead of the standard 0.4% rate. Therefore, a customer filling fuel worth ₹5,000 and paying through UPI would still make a ₹5,000 payment. The ₹5 MDR is a charge within the merchant payment ecosystem and is not designed as an additional fee for the customer.

The framework also retains zero MDR for eligible merchant transactions of up to ₹2,000. According to the government, around 96% of merchant transactions are expected to remain unaffected by the revised structure. Small merchants receiving up to ₹1 lakh a month through UPI QR payments will also continue to benefit from zero-MDR provisions under the applicable rules.

There is also no change to ordinary person-to-person UPI payments. Someone transferring ₹10,000 to a friend or sending money to a family member will continue to be able to make the transaction without an MDR charge. The new framework is focused primarily on eligible payments made to merchants and businesses. The rate is also not identical across every category of merchant payment above ₹2,000. Fuel, railways, telecommunications, insurance and agricultural inputs have been assigned a flat ₹5 MDR for eligible transactions above the threshold. Capital-market transactions have a separate MDR of 0.02%, with a maximum charge of ₹300.

The changes come as UPI continues to play a central role in India's digital payments ecosystem. The revised MDR framework is intended to provide a mechanism for supporting the costs associated with processing merchant payments while continuing to protect small-value transactions and person-to-person transfers. The key takeaway is that the new MDR framework should not be interpreted as a blanket UPI fee. Paying a restaurant bill, purchasing a phone or buying fuel through UPI does not automatically mean an additional charge will be added to the customer's payment. The applicable MDR is primarily a merchant-side payment-system cost, with the exact rate depending on the transaction category and value. The new rules are therefore less about making UPI a paid service for consumers and more about changing how the costs of certain merchant transactions are handled across India's rapidly expanding digital payments network.

Disclaimer: This image is taken from NDTV.