UPI MDR 2026: 0.4% Charge on Merchant Payments Above ₹2,000 From October 15

India’s Unified Payments Interface (UPI) is set to introduce a Merchant Discount Rate (MDR) on select merchant transactions above ₹2,000 from October 15, 2026, marking a change to the zero-MDR structure that has been in place for UPI merchant payments.

However, the new framework does not introduce a transaction fee for consumers. Person-to-person (P2P) UPI transfers will remain free regardless of the amount, while payments to merchants up to ₹2,000 will also remain outside the MDR framework. The government said approximately 96% of P2M transactions will remain unaffected under the new structure.

Under the framework notified by the National Payments Corporation of India (NPCI) on September 15, eligible Person-to-Merchant (P2M) UPI transactions above ₹2,000 will attract an MDR of 0.4%, payable within the merchant payment ecosystem.

For example, a customer paying ₹3,000 to an eligible merchant through UPI would not pay an additional fee, but the merchant would incur an MDR of ₹12. A ₹10,000 transaction would attract an MDR of ₹40. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.

The ₹2,000 threshold therefore applies to the merchant side of the transaction, rather than creating a consumer-facing UPI charge. P2P transfers, such as sending money to family members, friends or another personal bank account, remain completely free regardless of the amount.

The framework also creates a separate exemption for small merchants. Businesses classified under the Person-to-Person-Merchant (P2PM) category that receive up to ₹1 lakh per month through UPI QR codes directly into their bank accounts will continue to receive zero MDR, including on transactions above ₹2,000. The provision is intended to cover small businesses such as street vendors and neighbourhood merchants.

Not every merchant transaction above ₹2,000 will attract the standard 0.4% rate. Payments in certain essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat ₹5 MDR per transaction above ₹2,000.

Capital-market payments have also been given a separate rate. UPI payments relating to mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, capped at ₹300 per transaction.

The government has also clarified that the MDR is not a tax collected by the government or NPCI. The charge will be distributed among participants in the payments ecosystem, including banks, payment service providers and UPI application providers. The stated objective is to create a revenue mechanism that can support the continued operation and expansion of the UPI infrastructure.

The change comes at a time when UPI is processing transactions at unprecedented scale. NPCI data shows that UPI handled 24,508.96 million transactions, or about 2,451 crore transactions, worth ₹29.82 lakh crore in August 2026. August was a record month for transaction volume, with volumes rising 3.6% from July and 22% year-on-year.

The new framework is also linked to a broader effort to make the UPI ecosystem financially sustainable. The government said revenue from larger merchant transactions will support banks, payment service providers and UPI application providers in maintaining and expanding payment infrastructure, including in rural and semi-urban areas. Five percent of total MDR collections will also be allocated to a dedicated fund aimed at increasing UPI adoption among small merchants.

The introduction of MDR has nevertheless triggered concerns among sections of the merchant community. Retailer associations and traders have argued that the additional cost could affect businesses with thin margins and potentially encourage some merchants to prefer cash for larger transactions. These concerns remain part of the ongoing industry debate and do not change the current October 15 implementation date.

For consumers, the immediate takeaway is different: there is no new UPI payment fee at checkout under this framework. Banks have been advised to ensure that merchants do not pass MDR charges on to customers, while UPI application providers are prohibited from imposing platform fees or hidden charges on users. Individuals will continue to have unlimited free use of UPI, subject to existing transaction limits imposed for security and risk-management purposes.