UPI Payment Above ₹2000 Will Now Attract Merchant Discount Rate (MDR)

The National Payments Corporation of India (NPCI) has introduced a new Merchant Discount Rate (MDR) framework for certain UPI merchant transactions. The framework will come into effect from 15 October 2026.

One of the key points is that person-to-person (P2P) UPI payments will continue to remain completely free, irrespective of the amount transferred. MDR will apply only to specified Person-to-Merchant (P2M) transactions above ₹2,000.

What is UPI?

Unified Payments Interface (UPI) is an instant digital payment system developed and operated by NPCI under the regulatory framework of the Reserve Bank of India (RBI). It allows people to transfer money directly from one bank account to another through UPI enabled applications.

UPI has become an important part of India’s digital payment system. According to NPCI data, UPI processed around 24.51 billion transactions worth Rs 29.82 lakh crore in August 2026, with 752 banks live on the platform.

National Payments Corporation of India (NPCI) -

NPCI is an umbrella organisation responsible for operating and developing major retail payment and settlement systems in India. It was established in 2008 as an initiative of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA).

NPCI operates several major payment systems, including:

● UPI

● RuPay

● IMPS

● Bharat BillPay

● NETC FASTag

Payments Council of India (PCI) -

The Payments Council of India (PCI) was formed in 2013 under the Internet and Mobile Association of India (IAMAI). It represents non-banking companies in the digital payments industry, including players involved in services such as UPI and other digital payment systems.

What is Merchant Discount Rate (MDR)?

Merchant Discount Rate (MDR) is a fee associated with accepting digital payments by merchants. Under the new framework, MDR will apply to certain higher-value merchant transactions.

MDR should not be confused with a tax. It is not a government tax or a charge collected by NPCI. Instead, the amount is distributed among different participants in the payment ecosystem, including banks, payment service providers and payment application providers.

The idea behind introducing MDR is to create a revenue mechanism that can support the operation, maintenance and expansion of the digital payment infrastructure.

What Will Remain Completely Free?

The new framework does not introduce charges on ordinary person-to-person UPI transactions. All P2P payments will remain free, regardless of the amount transferred.

Merchant payments of up to ₹2,000 will also continue to have zero MDR. Eligible small merchants covered under the existing zero-MDR framework will continue to receive this benefit.

The Government estimates that around 96% of all P2M transactions will remain unaffected by the new framework.

MDR on P2M Transactions -

The new MDR will apply to specified Person-to-Merchant (P2M) transactions above ₹2,000. For these transactions, an MDR of 0.4% will be applicable. However, for transactions of ₹75,000 or more, the MDR will be subject to a maximum cap of ₹300 per transaction.

Examples

● On an eligible UPI merchant payment of ₹3,000, 0.4% MDR would amount to ₹12.

● On a ₹50,000 transaction, the MDR would be ₹200.

● For transactions of ₹75,000 or more, the maximum MDR would be ₹300.

Special MDR for Essential Sectors -

Some sectors have been given a separate rate because they provide essential services or generally operate with relatively narrow margins. For transactions above ₹2,000, the following sectors will attract a flat MDR of ₹5 per transaction:

● Railways

● Telecommunications

● Insurance

● Fuel

● Agricultural inputs

The flat rate is intended to provide these sectors with greater certainty regarding their payment-related costs.

Capital Market Transactions -

A separate, lower MDR has been prescribed for certain transactions connected with the capital market. Payments relating to Mutual funds, Securities, Stockbrokers and Dealers will attract an MDR of 0.02%, subject to a maximum cap of ₹300 per transaction.

Protection for Small Merchants

The framework continues to provide protection to small businesses. Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) classification will continue to enjoy zero MDR.

This is particularly important for street vendors, neighbourhood shops and other micro-businesses that regularly depend on UPI for day-to-day payments.

Will Consumers Have to Pay MDR?

According to the Government’s clarification, MDR is not meant to be directly charged to consumers. Banks have been advised to ensure that merchants do not pass the MDR cost on to customers. UPI application providers are also prohibited from imposing platform fees or hidden charges on individuals for UPI payments.

Individuals will continue to have unlimited free usage, without any monthly quota or volume-based charge under this framework.

Therefore, MDR and a consumer transaction fee are two different things. MDR is a merchant-side charge within the payment ecosystem, and it is not a fee that an individual has to pay simply for making a UPI payment.

Why Has MDR Been Introduced?

UPI has expanded rapidly, and operating such a large digital payment network requires continuous investment. This includes spending on Payment infrastructure, Server capacity, Cybersecurity, Fraud prevention, Technology and Customer support.

To take UPI to every area and citizen: 120 crore mobile users, but 56.5 crore UPI users, to bring investment into India’s FinTech ecosystem, the world’s 4th largest economy and growing.

Legal Framework -

The MDR framework has been introduced under the Payment and Settlement Systems Act, 2007. The framework follows deliberations by the UPI Steering Committee concerning applicable rates, operational arrangements and safeguards for consumers.