UPI MDR new rules: 0.4% charge above ₹2,000, ₹300 cap on high-value payments; see FAQs

The Unified Payments Interface (UPI) is set to enter a new phase of its evolution from October 15, 2026, with the introduction of a Merchant Discount Rate (MDR) on select Person-to-Merchant (P2M) transactions above ₹2,000. Under the new framework announced by the National Payments Corporation of India (NPCI), merchants will pay an MDR of 0.4% on eligible transactions, while payments of ₹75,000 and above will be subject to a maximum charge of ₹300 per transaction.

The new framework is designed to create a commercial revenue stream for the UPI ecosystem while keeping everyday digital payments free for consumers and small merchants. NPCI said the revenue generated will help fund infrastructure resilience, cybersecurity, fraud prevention, innovation and customer service as UPI continues to operate at unprecedented scale.

What changes from October 15?

The key change is that eligible P2M UPI transactions above ₹2,000 will no longer carry zero MDR. A merchant receiving a ₹3,000 payment, for instance, will pay ₹12 as MDR at the 0.4% rate. On a ₹50,000 transaction, the charge will be ₹200.

However, the framework puts a ceiling on the cost for high-value transactions. For a ₹1 lakh payment, 0.4% would ordinarily translate into ₹400, but the merchant will pay only ₹300 because transactions of ₹75,000 and above are subject to the fixed maximum cap.

Payments up to ₹2,000 will continue to attract zero MDR. NPCI said such transactions account for more than 95% of P2M UPI transaction volume, limiting the impact of the new framework on routine, low-value purchases.

Will consumers have to pay?

Consumers will continue to use UPI free of cost. The MDR is a merchant-side charge and UPI applications will not be permitted to impose a platform fee or any other charge on consumers for making UPI payments.

Person-to-person transactions will also remain free. This includes sending money to family members or friends, splitting bills and transferring money between one's own linked bank accounts.

What about small merchants?

Small vendors classified under the Person-to-Person-Merchant (P2PM) framework will continue to receive payments without MDR. The P2PM category covers small merchants receiving up to ₹1 lakh a month through UPI QR codes directly into their accounts.

Importantly, receiving an individual payment above ₹2,000 does not automatically make such a merchant liable for MDR if the account continues to qualify under the exempt P2PM category. Acquiring banks and payment service providers will monitor transaction activity, with merchants receiving more than ₹1 lakh a month consecutively for three months being transitioned to the P2M category.

Existing QR codes and soundboxes will continue to function, meaning merchants will not need to replace their physical QR infrastructure because of the new MDR framework.

Are there special rates?

Certain sectors will receive concessional treatment. Categories such as railways, telecom, insurance, fuel and utility payments will attract a flat ₹5 MDR for transactions above ₹2,000 instead of the standard 0.4% rate.

Capital-market transactions have a separate structure, with payments involving mutual funds, securities, stockbrokers and dealers attracting an MDR of 0.02%, capped at ₹300.

Why is NPCI introducing MDR?

NPCI has argued that the enormous scale of UPI requires a sustainable funding model. In August 2026 alone, UPI processed 2,451 crore transactions worth ₹29.9 lakh crore. Maintaining such infrastructure requires significant spending on servers, bandwidth, cybersecurity, fraud detection and banking technology.

The MDR framework is therefore intended to provide a predictable source of funding rather than relying entirely on annual government incentives. A dedicated fund is also proposed to support merchant onboarding and digital-payment infrastructure in Tier 3–6 centres, including the Northeast, Jammu & Kashmir and Ladakh. Its detailed framework is expected to be finalised in consultation with the Reserve Bank of India within three months.

The framework also bars merchants from directly passing the MDR on to customers, meaning consumers are expected to continue paying the displayed price even when the merchant incurs the new payment-processing cost.