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India has introduced an important change to the way certain UPI merchant payments will be charged. From 15 October 2026, a Merchant Discount Rate (MDR) will apply to specified person-to-merchant, or P2M, UPI transactions above ₹2,000.
For customers, the important point is simple: UPI payments remain free. The new MDR is a merchant-side charge and is not a fee that customers are supposed to pay.
What is the New UPI MDR Rate?
For most eligible merchant transactions above ₹2,000, the MDR will be 0.4% of the transaction value.
For example, if a customer pays ₹3,000 through UPI, the MDR would be ₹12. On a ₹10,000 UPI payment, it would be ₹40. For transactions of ₹75,000 or more, the MDR is capped at ₹300 per transaction.
The Government has also clarified that MDR is not a tax and is not collected by the Government or NPCI. It is shared within the payment ecosystem, including banks, payment service providers and UPI application providers.
Which UPI Transactions will remain free?
Person-to-person, or P2P, UPI transfers will continue to be free, regardless of the amount transferred. Merchant payments of up to ₹2,000 will also remain free from MDR.
Small merchants covered under the P2PM category, including those receiving up to ₹1 lakh per month through UPI QR codes, will continue to get zero-MDR treatment. According to the Ministry of Finance, around 96% of person-to-merchant UPI transactions are expected to remain unaffected by the new framework.
Are there Different MDR rates for some sectors?
Yes. The standard 0.4% rate does not apply in the same way to every category.
UPI transactions above ₹2,000 in certain essential or thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of ₹5 per transaction.
Payments relating to mutual funds, securities, stockbrokers and dealers will have an MDR of 0.02%, subject to a ₹300 cap per transaction.
Will customers have to Pay the UPI MDR?
No. The MDR is meant to be borne within the merchant payment ecosystem. The Government has stated that customers should not be charged for making UPI payments, and banks have been advised to ensure that merchants do not pass the MDR on to customers.
What does the UPI MDR change mean for Businesses?
For businesses that regularly receive UPI payments above ₹2,000, payment processing will now become a small but measurable operating cost.
Companies with high transaction volumes should review how much of their UPI revenue falls above the ₹2,000 threshold and factor the MDR into their payment-cost calculations, pricing decisions and cash-flow planning.
Businesses should also check how their bank, acquiring bank or payment service provider will reflect MDR deductions in settlement reports and reconciliation records.
Why has the UPI MDR been introduced?
The Government says the change is intended to make the UPI ecosystem more sustainable while keeping everyday digital payments affordable. Revenue from eligible merchant transactions is expected to support payment infrastructure, cybersecurity, technology upgrades and wider UPI adoption.
In short, UPI is not becoming paid for everyone. Consumers, P2P transfers, payments up to ₹2,000 and qualifying small merchants remain protected. The main change is for businesses receiving larger UPI merchant payments, which should now prepare for the new MDR structure from 15 October 2026.
Source: https://www.pib.gov.in/PressReleseDetailm.aspx?PRID=2310586&lang=1®=3
