New Delhi: UPI merchant payments above ₹2,000 will attract a Merchant Discount Rate (MDR) of 0.4% from October 15, 2026, under a new framework announced by India’s Ministry of Finance.
The MDR will apply to specified person-to-merchant (P2M) transactions and will be shared among participants in the payments ecosystem, including banks, payment service providers and UPI application providers. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.
The new framework will not affect person-to-person (P2P) UPI payments, which will remain free regardless of the amount transferred. Payments to merchants of up to ₹2,000 will also continue without MDR.
What will attract MDR?
For most P2M transactions above ₹2,000, the MDR will be set at 0.4%.
However, transactions in essential and thin-margin sectors will have a lower flat rate. Payments above ₹2,000 for railways, telecommunications, insurance, fuel and agricultural inputs will attract an MDR of ₹5 per transaction.
Payments involving mutual funds, securities, stockbrokers and dealers will carry an MDR of 0.02%, subject to a maximum of ₹300 per transaction.
Small merchants covered under the Person-to-Person-Merchant (P2PM) category will continue to receive zero-MDR treatment if they receive up to ₹1 lakh a month through UPI QR codes.
👉 UPI Continues to Remain Free for Peer to Peer Transactions and 96% of Merchant Transactions
👉 The new UPI framework introduced has no impact on any person to person transactions
👉 UPI will continue to remain completely free for all person-to-person transactions,… pic.twitter.com/lYVzehs6lU
— Ministry of Finance (@FinMinIndia) September 15, 2026
Customers will not pay MDR
The Finance Ministry clarified that MDR is a charge within the merchant payments ecosystem and is not a fee payable by customers making UPI payments.
Banks have been advised to ensure that merchants do not pass the MDR on to customers. UPI application providers have also been prohibited from imposing platform fees or hidden charges on users.
Individuals will continue to have unlimited free UPI usage, with no monthly quotas or volume-based charges.
Most UPI merchant payments remain unaffected
According to the Finance Ministry, the new MDR will apply to only about 4% of merchant transactions. This means approximately 96% of P2M transactions will remain unaffected because they either fall below the ₹2,000 threshold or are covered by the zero-MDR framework for small merchants.
The government said that the framework supports the long-term sustainability of the UPI ecosystem while allowing continued investment in infrastructure, cybersecurity, fraud prevention and technological upgrades.
The changes follow amendments to the Payment and Settlement Systems Act, 2007, which created an enabling framework for imposing MDR on specified electronic payment transactions.
UPI was launched in 2016 and has since become a major part of India’s digital payments infrastructure. The government said UPI processed 2,366 crore transactions worth ₹29.9 lakh crore in July 2026 alone.
