New Delhi: UPI payments made to merchants above ₹2,000 will attract a 0.4% Merchant Discount Rate (MDR) from October 15, 2026, under a new payment structure announced by the National Payments Corporation of India (NPCI).
The revised framework will primarily affect larger merchant transactions, while person-to-person (P2P) UPI payments and transactions made to eligible small vendors will remain free.
The move is aimed at creating a more sustainable revenue model for the UPI ecosystem while ensuring that everyday digital payments continue to remain largely free for consumers.
UPI transactions below ₹2,000 to remain free
According to the Ministry of Finance, the new MDR will apply only to person-to-merchant (P2M) UPI transactions above ₹2,000.
Payments of up to ₹2,000 made to merchants through UPI or RuPay debit cards will not attract the charge.
The government has also clarified that P2P UPI transactions will remain completely free, regardless of the amount transferred.
P2P transactions account for around 37% of UPI transactions by volume and 70% by value, according to government data.
Small vendors will be exempt from MDR
One of the major provisions of the new framework is an exemption for small merchants.
Merchants receiving up to ₹1 lakh per month through UPI QR codes under the Person-to-Person Merchant (P2PM) category will not have to pay MDR on the UPI payments they receive.
The government said the exemption is intended to support street vendors, small businesses and other informal merchants as they move towards formal digital payment systems.
Customers will not have to pay the MDR
The Ministry of Finance has also advised banks to ensure that merchants do not transfer the MDR cost to customers.
This means consumers should not be charged an additional fee simply for making an eligible UPI payment.
The 0.4% MDR collected on applicable transactions will be distributed among different participants in the payments ecosystem, including banks and payment service providers.
For transactions worth ₹75,000 or more, the MDR will be capped at ₹300 per transaction.
Different MDR rates for specific sectors
The new framework includes separate rules for certain industries.
Transactions above ₹2,000 in sectors such as railways, telecom, insurance, fuel and agriculture inputs will attract a fixed MDR of ₹5 per transaction, instead of the standard 0.4% rate.
The government said the flat-fee structure is intended to provide greater cost predictability for essential services and industries that typically operate on lower margins.
Meanwhile, payments involving mutual funds, securities, stock brokers and dealers will carry a much lower MDR of 0.02%, with the charge capped at ₹300 per transaction.
The reduced rate is intended to encourage wider participation in formal financial markets.
Only a small share of merchant payments expected to be affected
The Finance Ministry estimates that the new MDR framework will impact only around 4% of merchant transactions.
Most UPI payments either fall below the ₹2,000 threshold or are covered by the zero-MDR framework for eligible small merchants.
The government has also said that 5% of the total MDR collections will be allocated to a dedicated fund aimed at promoting UPI adoption among small merchants.
The fund is expected to support wider UPI acceptance and encourage digital payments among small businesses, particularly in rural and semi-urban areas.
UPI to remain largely free for users
The government described the new MDR framework as a step towards making the UPI ecosystem more financially sustainable without significantly increasing costs for ordinary users.
With P2P payments, small merchants and transactions below ₹2,000 continuing to remain exempt, the majority of everyday UPI payments are expected to remain free.
The new MDR rules will come into effect from October 15, 2026.
