Merchants will have to pay a Merchant Discount Rate (MDR) of 0.4% on specified UPI payments above Rs 2,000 from October 15, 2026, under a revised framework approved by the UPI & Services Steering Committee headed by the National Payments Corporation of India (NPCI).
The new charge will apply only to person-to-merchant (P2M) transactions. The MDR will be capped at Rs 300 per transaction, meaning payments of Rs 75,000 or more will attract a maximum charge of Rs 300. Payments of up to Rs 2,000 to merchants will continue to remain free. Small merchants receiving up to Rs 1 lakh per month through UPI QR codes under the specified category will also continue to be covered by the zero-MDR framework.
Certain essential and thin-margin sectors will have a flat MDR of Rs 5 per transaction for payments above Rs 2,000. These include categories such as railways, telecommunications, insurance, fuel and agricultural inputs. Capital market-related payments will attract a separate MDR of 0.02%, capped at Rs 300 per transaction.
The framework does not impose any charge on customers. Person-to-person (P2P) UPI transfers will remain completely free, irrespective of the amount transferred, while banks have been advised to ensure that merchants do not pass the MDR on to customers. The government said around 96% of merchant UPI transactions will remain unaffected by the new framework.
The revised fee structure is aimed at supporting the long-term sustainability of the UPI ecosystem and helping fund payment infrastructure, cybersecurity and continued expansion. The MDR will be distributed among participants in the payment ecosystem rather than being collected as a government tax.