New 0.4% UPI Fee From 15 October: A Checklist for SMEs

From 15 October 2026, many Indian businesses will start paying a fee on larger UPI payments from customers. The charge is small per payment, but it adds up quickly if you collect high-value sales through UPI. Here is what is changing, who it affects and what to do in the next two weeks.

What has changed

The National Payments Corporation of India (NPCI), which runs UPI, released FAQs on 15 September setting out a new merchant discount rate (MDR) framework. MDR is the fee a business pays its bank or payment provider for accepting a digital payment. Until now, UPI payments to merchants have been free.

From 15 October, a 0.4% MDR will apply to specified person-to-merchant (P2M) UPI payments above ₹2,000, according to Kotak Mahindra Bank's explainer. For payments of ₹75,000 or more, the fee is capped at ₹300 per transaction.

In practice, that means ₹12 on a ₹3,000 sale, ₹200 on a ₹50,000 sale and ₹300 on a ₹1 lakh sale, as Business Today sets out.

What stays free, and the special rates

Not everything is caught. Based on the NPCI FAQs as summarised by SCC Online and Kotak:

• Payments of ₹2,000 or less to merchants stay free. SCC Online notes these make up over 95% of UPI merchant transaction volume.
• Person-to-person transfers stay free, whatever the amount.
• Small merchants in the P2PM category, receiving up to ₹1 lakh a month through UPI QR codes, keep zero MDR.
• Credit-linked UPI payments, such as RuPay credit cards on UPI, are not covered by this framework.
• Certain sectors (railways, telecom, insurance, fuel and agricultural inputs) pay a flat ₹5 on payments above ₹2,000.
• Capital market transactions pay 0.02%, capped at ₹300.

Customers cannot be charged the fee. NPCI says the money "will help fund infrastructure resilience, cybersecurity, fraud prevention, innovation and customer service", as quoted by Business Today.

What this means for your business

If you are a retailer, distributor, clinic, school supplier or service business that collects most payments under ₹2,000, very little changes. The businesses that will feel it are those collecting regular, higher-value payments through UPI, often from trade customers who find it easier than a bank transfer.

For example, a Pune-based distributor collecting ₹40 lakh a month through UPI, in payments of around ₹20,000 each, would pay about ₹16,000 a month in MDR. That is close to ₹2 lakh a year that did not exist before, coming straight off the margin.

There is also a reporting point. Once a fee is deducted, the amount that lands in your bank will no longer match the invoice exactly. Unless MDR is recorded separately, your receivables will show small unpaid balances, your bank reconciliation will throw up differences and your gross sales may be understated.

For GCC-based groups with Indian subsidiaries, branches or franchise partners, this is worth flagging to the India finance team now. Group reporting packs that assume UPI receipts equal sales will need a new line for payment charges, and any budgets for India operations should reflect the new cost from the second half of October.

Your checklist before 15 October

• Ask your bank or payment provider for written confirmation of the rates that will apply to your account, how and when MDR will be deducted, and whether GST will be added on top.
• Check whether you qualify as a small merchant. If your UPI QR receipts are close to ₹1 lakh a month, understand how the threshold is measured.
• Run the numbers. Pull three months of UPI receipts, count payments above ₹2,000 and estimate the monthly cost at 0.4% (with the ₹300 cap).
• Review how large customers pay you. For high-value trade invoices, a direct bank transfer through NEFT or RTGS may cost you less than UPI. Agree the preferred method in your payment terms.
• Do not add a surcharge at checkout. The framework says customers must not be charged the fee. If you want to recover the cost, review your pricing instead.
• Set up a separate ledger account for UPI MDR so the fee is visible in your monthly reports and does not sit hidden in receivables.
• Update your reconciliation process so settlements are matched gross of fees, with the MDR booked automatically against each receipt.
• Speak to your tax adviser about the GST and input tax credit treatment of the new charge before your next return.

If your team already struggles to match daily UPI settlements to invoices, this is a good moment to fix it. NexCFO's bank reconciliation and MIS reporting can match each settlement to its invoices and show payment charges as their own line, so the cost is visible rather than buried.

A 0.4% fee will not sink any business, but an unnoticed one will quietly eat into margin every month.