The Union government has introduced a revised Merchant Discount Rate (MDR) framework for UPI transactions, with a 0.4% MDR applying to specified person-to-merchant (P2M) payments above ₹2,000 from October 15, 2026.
The government has clarified that the MDR will not be charged to consumers. The fee is part of the merchant payment ecosystem and will be distributed among participating entities, including banks and payment service providers. Person-to-person (P2P) UPI transfers will continue to remain free regardless of the amount transferred.
Under the new framework, the MDR for eligible P2M transactions above ₹2,000 will be capped at ₹300 for transactions of ₹75,000 or more. Payments of up to ₹2,000 to merchants will remain free, while small merchants covered under the zero-MDR framework will also continue to be exempt.
Certain essential and thin-margin sectors will instead attract a flat ₹5 MDR on transactions above ₹2,000. These include railways, telecommunications, insurance, fuel and agricultural inputs. Government utility payments for electricity, water and piped gas, as well as educational fee payments, will also attract the ₹5 rate when the transaction exceeds ₹2,000.
Payments involving mutual funds, securities, stockbrokers and dealers will attract a lower MDR of 0.02%, capped at ₹300 per transaction. The government said the lower rate is intended to support digital investing and participation in formal financial markets.
The government said the revised framework is intended to support investment in UPI infrastructure, resilience, cybersecurity, innovation and customer service. The MDR is not a tax collected by the government or NPCI but a charge distributed among participants in the payment ecosystem.
According to the Finance Ministry, the changes will affect only about 4% of merchant transactions, meaning approximately 96% of P2M transactions will remain unaffected. The ministry said this is because most transactions are either below the ₹2,000 threshold or covered by the zero-MDR framework for small merchants.
The government has also directed banks to ensure that merchants do not pass the MDR cost on to customers. UPI application providers are prohibited from imposing platform fees or hidden charges on users for these transactions.
The revised framework follows several years in which UPI operated without MDR on most transactions. The new structure will take effect on October 15, 2026, while P2P transfers and eligible low-value merchant payments will continue to remain free.
