EMI India: Understanding No-Cost EMI and the New UPI MDR Impact

Search interest for "emis" saw a 100% increase in India on 25–26 September 2026, with approximately 1,000 searches recorded [3]. This trend highlights a growing need for clarity on how zero-interest loan offers actually function and how upcoming changes to the Unified Payments Interface (UPI) might affect monthly repayments.

The Reality of No-Cost EMIs

While "no-cost" suggests a zero-interest loan, the financial structure is typically a subsidy rather than a free loan. According to Forbes India, in these arrangements, the lender still applies interest charges, but the manufacturer or seller pays a subvention or discount to offset that cost for the consumer [1]. Essentially, the "interest-free" benefit is pre-funded by the brand to encourage higher sales volumes.

New UPI Merchant Discount Rate (MDR) from October 15

A significant shift in the digital payment landscape arrives on 15 October 2026. Finance Minister Nirmala Sitharaman clarified on 25 September 2026 that a 0.4% Merchant Discount Rate (MDR) will be applied to person-to-merchant (P2M) UPI transactions exceeding ₹2,000 [2]. This is a professional ecosystem decision by the NPCI and banks, not a government tax.

Crucially, this fee is intended to be borne by the merchant, not the end consumer, and is capped at ₹300 for any transaction of ₹75,000 or more [2]. Most everyday users will remain unaffected, as peer-to-peer (P2P) transfers and small merchants (those earning up to ₹1 lakh monthly) are fully exempt [2].

MDR Revenue Distribution

Entity	Revenue Share
Customer Banks	40%
Payment Gateways	30%
UPI Applications	20%
Sponsoring Banks	10%

Special Transaction Rates

• Essential Services: A flat ₹5 fee applies to transactions above ₹2,000 for fuel, insurance, telecom, and railways [2].
• Capital Markets: Mutual funds and stockbroking transactions carry a lower 0.02% rate, capped at ₹300 [2].

Impact on EMI Repayments

For borrowers who use UPI to pay their monthly installments, the 15 October deadline is important. If an EMI payment is treated as a P2M transaction and exceeds ₹2,000, the lender (acting as the merchant) will incur the 0.4% MDR. While the policy states consumers should not be charged, borrowers should monitor their statements for any new processing fees that lenders might introduce to offset these ecosystem costs.