NPCI Sets 0.4% MDR on UPI Merchant Payments Above ₹2,000 From October 15; ₹300 Cap for High-Value Transactions
The National Payments Corporation of India (NPCI) has introduced a new Merchant Discount Rate (MDR) framework under which specified UPI person-to-merchant (P2M) transactions above ₹2,000 will attract an MDR of 0.4%. The new framework will take effect from October 15, 2026.
The move marks a significant change to the economics of UPI merchant payments, which have operated under a largely zero-MDR structure for more than six years. NPCI and the government have said the revised framework is intended to support investment in payment infrastructure, cybersecurity, fraud prevention, innovation and customer service as UPI continues to scale.
The new MDR applies to the merchant side of eligible transactions rather than directly charging consumers. For example, a ₹3,000 eligible merchant payment would attract an MDR of ₹12, while a ₹50,000 transaction would attract ₹200 at the 0.4% rate. For transactions of ₹75,000 or more, the charge will be capped at ₹300 per transaction.
Importantly, UPI person-to-person payments will remain free regardless of the amount transferred. Merchant payments of up to ₹2,000 will also remain outside the new MDR framework. The government said approximately 96% of P2M transactions will remain unaffected by the change.
NPCI has also provided special treatment for certain sectors. Merchant UPI payments above ₹2,000 involving categories such as railways, telecommunications, insurance and fuel will attract a flat MDR of ₹5 instead of the standard 0.4% rate.
Capital-market transactions have been assigned a separate structure. Payments connected with mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, subject to a maximum of ₹300 per transaction.
Small merchants are also being protected through a separate exemption. NPCI has defined eligible small merchants as those receiving up to ₹1 lakh a month through UPI QR payments directly into their bank accounts. Such merchants can continue receiving UPI payments without MDR even when an individual transaction exceeds ₹2,000.
The government has clarified that MDR is not a tax collected by the government or NPCI. Instead, the revenue will be distributed among participants in the UPI payment ecosystem, including banks, payment service providers and UPI application providers.
The framework also prohibits merchants from passing the MDR directly to customers. The government’s stated position is that consumers should continue to pay the displayed price, while banks and payment-system participants absorb and distribute the applicable merchant-side cost.
NPCI has argued that the charge remains relatively low compared with conventional card-based payment processing. Its FAQ notes that typical credit-card MDRs can be substantially higher, while the UPI framework limits the rate to 0.4% for eligible transactions and introduces a ₹300 ceiling for very high-value payments.
The change comes as UPI handles unprecedented transaction volumes. In August 2026, the network processed about 24 billion transactions worth roughly $311 billion, according to Reuters. The introduction of MDR therefore creates a new revenue mechanism for an ecosystem that has expanded rapidly while maintaining very low or zero direct transaction charges.
The government has also proposed using 5% of MDR collections for a dedicated fund to encourage UPI acceptance among small merchants and expand digital-payment infrastructure. NPCI said the mechanism for the fund will be finalised in consultation with the Reserve Bank of India.
The immediate impact is therefore concentrated on eligible higher-value merchant transactions rather than ordinary UPI usage. Consumers making everyday payments below ₹2,000 and users transferring money directly to other individuals will continue to have no MDR, while eligible merchants and payment-system participants will have to adjust their systems before the October 15 implementation date.
