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NEW DELHI: The National Payments Corporation of India (NPCI) will introduce a Merchant Discount Rate (MDR) of 0.4% on select person-to-merchant (P2M) UPI transactions above ₹2,000 starting 15 October 2026.
The charge will be borne by merchants and is aimed at creating a sustainable commercial model for the UPI ecosystem, according to official announcements by the Ministry of Finance and NPCI.
Importantly, the new framework leaves the vast majority of everyday UPI usage unaffected. All person-to-person (P2P) transfers will remain completely free, regardless of the amount.
Merchant payments up to ₹2,000 will also continue to carry zero MDR. Small merchants, including street vendors receiving up to ₹1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category, will remain fully exempt. As a result, approximately 96% of all P2M transactions will stay free of the new charge.
What Attracts the Charge and What Does Not
MDR of 0.4% will apply only to specified larger merchant transactions above ₹2,000. For payments of ₹75,000 and above, the charge will be capped at ₹300 per transaction.
Customers will not pay the MDR; banks have been advised to ensure merchants do not pass the cost on to buyers, and UPI apps are prohibited from imposing platform or hidden fees.
Certain essential and thin-margin sectors will face a concessional flat MDR of ₹5 per transaction above ₹2,000. These include railways, telecommunications, insurance, fuel and agricultural inputs.
Capital-market related payments (mutual funds, stockbrokers, securities dealers) will attract a lower rate of 0.02%, also capped at ₹300.
Authorities have stated that operating UPI at its current scale involves significant costs related to infrastructure, cybersecurity, fraud prevention and customer support.
The MDR revenue will be shared among banks, payment service providers and UPI application providers to support further expansion, particularly in rural and semi-urban areas, and to reduce long-term dependence on government subsidies.
A dedicated fund equivalent to 5% of total MDR collections will be created to promote UPI adoption among small merchants.
The framework has been introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee, and aligns with recommendations of the Standing Committee on Finance.
The Ministry of Finance has emphasised that individuals will continue to enjoy unlimited free UPI usage with no monthly quotas or volume restrictions on free transactions. Daily transaction limits set by banks remain risk-management measures and are not related to charging.
The changes take effect from 15 October 2026 and are designed to balance the long-term sustainability of India’s dominant digital payments platform while protecting consumers and small businesses from additional costs.
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