UPI Isn't Free for Merchants Anymore. Here's What That Means If You Earn Online
For most people receiving money online, very little has changed. The new UPI charges for businesses are real, but they cover a narrow slice of transactions, and the government's own figure is that roughly 96 percent of merchant transactions remain entirely unaffected.
Here is what the new framework actually does, how to tell whether it touches your income at all, and what to do if it does.
What actually changed
The Ministry of Finance announced the framework on 15 September 2026, introduced under the Payment and Settlement Systems Act, 2007 after deliberation by the UPI Steering Committee.
What stays free:
- All person-to-person transfers, irrespective of the amount. No transaction fee, platform fee or other charge may be imposed on individuals sending or receiving money this way.
- Merchant payments up to ₹2,000.
- Payments received by small merchants in the Person-to-Person-Merchant category, receiving up to ₹1 lakh a month through UPI QR codes. These keep zero MDR on all transactions.
What now carries a charge:
- Person-to-merchant transactions above ₹2,000 attract a merchant discount rate of 0.4 percent, capped at ₹300 per transaction for payments of ₹75,000 and above.
- Essential sectors including railways, telecommunications, insurance, fuel and agricultural inputs pay a flat ₹5 per transaction above ₹2,000.
- Capital market payments for mutual funds, securities and brokers pay 0.02 percent, capped at ₹300.
Two clarifications from the release are worth holding onto. MDR is not a tax, and it is not collected by the government or NPCI. It is shared among banks, payment service providers and UPI app providers to fund the system. And the daily transaction limits your bank imposes, typically ₹1 lakh to ₹5 lakh, are security safeguards rather than charging thresholds.
The question that decides whether this applies to you
For a freelancer or creator, the 0.4 percent figure matters far less than one earlier question: which category are your payments received in?
Person-to-person. If clients pay into your personal UPI ID, the rail treats it as a transfer between individuals, and the framework states plainly that these remain free irrespective of amount.
Person-to-Person-Merchant. If you use a small merchant QR under this category and receive up to ₹1 lakh a month through it, you keep zero MDR.
Person-to-merchant. If you receive through a registered business merchant account or a payment gateway, transactions above ₹2,000 now carry the charge.
The category is set by how your account and QR are registered, not by what you are selling. So the practical first step is simply finding out which one you are in, which your bank or payment provider can tell you in a single conversation.
One caution worth stating plainly. This is not a suggestion to move business receipts onto a personal account to avoid the charge. Banks set terms on how accounts may be used, and business income is business income for tax and GST purposes whichever rail it arrives on. If you are unsure which category is correct for your work, ask your bank and your accountant rather than deciding on cost alone.
One simple cost example
Say you receive ₹25,000 from a client through a registered merchant QR, which puts the payment in the person-to-merchant category.
At 0.4 percent, the MDR is ₹100, so ₹24,900 reaches your account. Had the same client paid ₹1,800, nothing would be deducted, because payments up to ₹2,000 remain free. Had they paid into your personal UPI ID as a person-to-person transfer, nothing would be deducted at any amount.
Two rules shape the figure at the edges. The charge is capped at ₹300 per transaction for payments of ₹75,000 and above, so a ₹2 lakh payment costs ₹300 rather than ₹800, an effective rate of 0.15 percent. And the release does not spell out whether the 0.4 percent applies to the full transaction or only the portion above ₹2,000. The example assumes the full transaction, which is how merchant discount rates are conventionally charged, so confirm with your provider.
Pricing and invoicing
Do not add a UPI surcharge line to your invoices. The release states that banks have been advised to ensure merchants do not pass MDR on to customers, and customers are not meant to pay it on ordinary UPI payments.
That is different from your pricing. Setting your overall rates is your business decision, and if payment costs have risen you can account for that in what you charge for your work. What you should not do is itemise the MDR as a separate fee on the customer.
Record it as a cost of doing business. MDR deducted from your receipts is an expense, and your accountant will want it tracked so your income figures reconcile with what actually reached your account.
Consider invoice structure. For amounts well above ₹2,000 there is no benefit in splitting an invoice to stay under the threshold, and deliberately structuring payments to avoid a charge invites exactly the scrutiny you do not want. Invoice what the work is worth, in the way that suits the client.
UPI versus payment gateways
Payment fees for online business vary widely by method. For most freelancers accepting UPI, it remains inexpensive even after this change. A 0.4 percent charge on qualifying payments is modest compared with the fees that have historically applied to card payments processed through gateways.
Gateways still earn their place where you need card acceptance, international payments, recurring billing or automated invoicing. The right comparison is your provider's current rate card for the methods your clients actually use, rather than a general assumption either way.
What you do not need to do
You do not need to change payment methods in a hurry. Individuals keep unlimited free usage with no monthly quotas, P2P stays free, most merchant transactions are unaffected, and even qualifying payments carry a small, capped charge.
Find out which category you receive in. If it is person-to-merchant and you invoice above ₹2,000 regularly, work out your likely monthly UPI MDR at 0.4 percent of each qualifying payment and decide whether it changes anything. For most people taking online payments in India, it will not.
Common questions
Is UPI still free for me as an individual?
Yes. All person-to-person UPI transfers remain completely free irrespective of the amount, and individuals keep unlimited free usage with no monthly quotas or tiered caps. The new charge applies only to specified merchant transactions above ₹2,000.
Will my clients be charged when they pay me by UPI?
They should not be. The framework describes MDR as a charge within the merchant payment ecosystem, not on customers, and banks have been advised to ensure merchants do not pass it on. UPI app providers are also prohibited from imposing platform fees or hidden charges.
Does the 0.4 percent apply to every payment I receive?
No. It applies only to person-to-merchant transactions above ₹2,000. Person-to-person payments are free at any amount, merchant payments up to ₹2,000 are free, and small merchants receiving up to ₹1 lakh a month through the Person-to-Person-Merchant QR category keep zero MDR.
Is there a maximum charge on large payments?
Yes. For transactions of ₹75,000 and above, the MDR is capped at ₹300 per transaction. That means a ₹2 lakh payment carries the same ₹300 charge as a ₹75,000 one, an effective rate of 0.15 percent.
Should I switch away from UPI because of this?
For most freelancers, no. The charge affects roughly 4 percent of merchant transactions and is small and capped where it does apply. Check which category your payments fall into first, then compare your provider's current rates for the methods your clients use.
About the Author
Rudra Pratap Singh is the founder of New Money Matrix and a YouTube automation expert. He has trained 10,000+ creators who've generated ₹4 Crore+ in earnings.
With 8+ years Experience, Rudy specializes in helping creators build automated YouTube channels without showing their face.
Student results shown are individual experiences, not typical results, and are not a guarantee of earnings.