UPI Rules Change From October 15: Will Street Vendors and Small Shops Have to Pay MDR?
UPI New Rules 2026: A major change in India's UPI payment framework will take effect from October 15, 2026, but it does not mean every shopkeeper or customer will suddenly have to pay for using UPI.
The new framework introduces a Merchant Discount Rate, or MDR, on certain merchant transactions above ₹2,000. However, special protection has been provided for small merchants, including street vendors and neighbourhood shops.
This means someone running a tea stall, vegetable cart, roadside food counter or other small business should not assume that every UPI payment will now attract a charge. Whether MDR applies depends on the type of transaction, its value and the merchant's classification.
What Changes From October 15?
Under the new framework, ordinary Person-to-Person (P2P) UPI transfers will continue to remain free regardless of the amount transferred.
For regular Person-to-Merchant (P2M) payments, transactions of up to ₹2,000 will also remain free of MDR.
For specified standard merchant transactions above ₹2,000, an MDR of 0.40% will apply. For transactions worth ₹75,000 or more, the MDR will be capped at ₹300 per transaction.
Importantly, MDR is a merchant-side payment ecosystem charge. Customers making UPI payments are not supposed to be charged MDR.
What About Tea Sellers, Vegetable Vendors and Street Hawkers?
This is where the ₹1 lakh provision becomes particularly important.
Small merchants, including street vendors, receiving up to ₹1 lakh per month through eligible UPI QR payments under the Person-to-Person-Merchant (P2PM) category will continue to receive zero-MDR treatment.
Therefore, a small street vendor who falls within this category and remains within the prescribed monthly threshold does not automatically start paying MDR simply because the new framework begins on October 15.
The provision is intended to protect small businesses such as local vendors and neighbourhood shops from additional digital-payment costs.
Is ₹1 Lakh a Limit on How Much People Can Pay Through UPI?
No. The ₹1 lakh figure in this provision should not be confused with a universal monthly UPI transaction limit for customers.
It relates to the zero-MDR treatment available to qualifying small merchants receiving payments through the specified QR-based category.
Consumers will continue to have free UPI usage without a monthly charging quota under this framework.
Banks and NPCI may separately prescribe daily transaction limits, often depending on the bank and transaction category. Those are security and risk-management limits and are different from the MDR rules.
What Exactly Is the ₹2,000 Rule?
The ₹2,000 threshold applies to merchant transactions.
A regular P2M payment of ₹2,000 or less will not attract MDR.
For applicable standard merchant payments above ₹2,000, the MDR is set at 0.40%.
For example, if an eligible transaction is ₹5,000, a 0.40% calculation comes to ₹20. On a ₹10,000 transaction, it works out to ₹40.
However, this calculation should not be applied blindly to every QR payment because exemptions and different rates exist for certain merchant categories.
Will Customers Pay Extra at the Shop?
Customers are not supposed to pay MDR.
The government's clarification states that MDR is not a tax or a fee collected from customers. Instead, it operates within the merchant payment ecosystem and is distributed among participants such as banks, payment service providers and UPI application providers.
Banks have also been advised to ensure that merchants do not pass the MDR on to customers, while UPI application providers are prohibited from adding platform fees or hidden charges to users under this framework.
Therefore, a customer making a ₹100 UPI payment at a tea stall should not suddenly have to pay ₹101 because of the new MDR framework.
Some Essential Sectors Get a Different Rate
The framework also provides different treatment for certain essential and low-margin sectors.
For UPI transactions above ₹2,000 in areas such as railways, telecommunications, insurance, fuel and agricultural inputs, the applicable MDR will be a flat ₹5 per transaction.
Capital-market-related UPI payments, including transactions involving mutual funds, securities, stockbrokers and dealers, will have an MDR of 0.02%, subject to a ₹300 cap per transaction.
These special rates are different from the standard 0.40% rate.
Most Merchant UPI Payments Will Still Remain Unaffected
Despite the introduction of MDR, the change is designed to cover only a relatively small proportion of merchant transactions.
According to the government's September 15 clarification, approximately 96% of UPI merchant transactions are expected to remain unaffected because they either fall within the ₹2,000 threshold or qualify under the zero-MDR framework for small merchants.
The government has said revenue generated through eligible MDR transactions will support UPI infrastructure, cybersecurity, innovation and customer services.
A dedicated mechanism is also planned to support UPI adoption among small merchants, with an amount equivalent to 5% of MDR collections earmarked for the initiative.
What Should Small Shopkeepers Remember?
The most important point is that the October 15 change does not mean UPI is becoming a paid service for everyone.
P2P transfers remain free, customers will not pay MDR, and merchant payments of up to ₹2,000 remain outside MDR. Small merchants such as street vendors receiving up to ₹1 lakh a month through qualifying P2PM QR payments also retain zero-MDR treatment.
The 0.40% MDR primarily applies to specified standard P2M merchant transactions above ₹2,000, subject to the framework's exemptions and special categories.
So, for most people buying tea, vegetables, groceries or other everyday items through UPI, the basic payment experience should remain unchanged after October 15.