NPCI Sets 0.4% MDR on UPI Merchant Payments Above ₹2,000 From October 15
The National Payments Corporation of India (NPCI) has introduced a new Merchant Discount Rate (MDR) framework for select Unified Payments Interface (UPI) transactions, with a 0.4% charge applying to eligible person-to-merchant (P2M) payments above ₹2,000 from October 15, 2026. The new framework is designed to provide a revenue mechanism for the UPI payments ecosystem while keeping everyday low-value transactions free.
Under the new structure, the 0.4% MDR will apply to qualifying merchant transactions above ₹2,000, with the charge capped at ₹300 for transactions of ₹75,000 or more. MDR is a fee within the merchant-payment ecosystem and is not a direct transaction charge imposed on consumers by the government or NPCI.
The government has clarified that consumers will continue to make UPI payments without paying MDR. Banks have been advised to ensure that merchants do not pass the MDR on to customers, while UPI application providers have been prohibited from imposing platform fees or hidden charges on these transactions.
Person-to-person (P2P) UPI transfers will remain completely free regardless of the amount involved. Merchant payments of up to ₹2,000 will also remain free, meaning the new framework is targeted primarily at higher-value merchant transactions rather than ordinary small purchases.
NPCI has said that more than 95% of UPI P2M transactions are below the ₹2,000 threshold. The Finance Ministry estimates that approximately 96% of merchant transactions will remain unaffected because they either fall below the threshold or qualify for the zero-MDR framework applicable to small merchants.
Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the specified P2PM category will continue to receive zero-MDR treatment. This provision covers categories such as street vendors, neighbourhood shops and other small businesses, including transactions above ₹2,000 where the merchant meets the exemption criteria.
Certain essential and thin-margin sectors will have a separate structure. UPI payments above ₹2,000 involving railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5 per transaction rather than the standard 0.4% rate.
Capital-market-related payments will also have a distinct rate. Transactions involving mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, subject to a maximum of ₹300 per transaction.
The move marks a significant change after years in which UPI merchant payments operated under a zero-MDR regime. The government has said the new framework is intended to support the long-term sustainability of the rapidly expanding payments infrastructure, including banks, payment service providers and UPI application providers. MDR collections will be distributed among participants in the payment ecosystem rather than collected as government revenue.
The scale of UPI helps explain the importance of the policy. India processed 2,366 crore UPI transactions worth about ₹29.9 lakh crore in July 2026 alone, according to figures cited by the government and reported following the NPCI announcement. Over the decade since UPI’s launch, its transaction value has expanded dramatically as digital payments became embedded in everyday commerce.
The new MDR framework therefore does not amount to a general UPI fee for consumers. Its immediate impact is concentrated on specified higher-value payments made to merchants, while P2P transfers, payments up to ₹2,000 and qualifying small-merchant transactions remain outside the charge. The new system will take effect on October 15, giving banks, payment aggregators, fintech companies and merchants time to update their payment and accounting systems.
