- Consumers will not pay MDR; charges apply only to merchants for select transactions above Rs 2,000
- MDR is 0.4% for P2M payments above Rs 2,000, capped at Rs 300 for transactions of Rs 75,000 and above
- P2M payments up to Rs 2,000 and merchants with under Rs 1 lakh monthly transactions remain exempt from MDR
India's Unified Payments Interface (UPI) is set for its first broad-based merchant discount rate (MDR) framework from October 15, 2026, but the change is narrower than the headline may suggest. The new rules apply to select person-to-merchant (P2M) payments above Rs 2,000, while person-to-person (P2P) transfers will remain free. Consumers will also not be charged an MDR when making eligible UPI payments.
For most everyday UPI users, therefore, little changes. The government has said the vast majority of merchant transactions will remain outside the new charge structure, while NPCI's framework sets different rates for large payments and certain sectors.
Here are five questions that explain the new UPI MDR framework.
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1. Will consumers have to pay for using UPI?
No. The MDR is a merchant-side charge, not a transaction fee imposed on the person making the payment. Banks have been advised to ensure that merchants do not pass the MDR on to customers.
So, when a consumer pays a merchant through UPI, the customer continues to pay the listed price. There is also no monthly quota or free-use limit for individual UPI users under the new framework. P2P transfers - such as sending money to family, friends or one's own accounts - remain free regardless of the amount.
2. Which UPI payments will attract MDR, and how much?
For standard P2M transactions above Rs 2,000, MDR will be 0.4% of the transaction value.
That means a Rs 3,000 payment would generate an MDR of Rs 12, while a Rs 50,000 payment would attract Rs 200.
For transactions of Rs 75,000 and above, the MDR is capped at Rs 300. So a Rs 1 lakh merchant payment would not attract Rs 400 at the 0.4% rate; the charge would remain Rs 300.
3. Will small payments and small merchants be affected?
For customers, P2M payments up to Rs 2,000 remain outside the MDR framework. More than 95% of P2M transactions are expected to remain unaffected, according to NPCI.
Small merchants also get a separate exemption. Businesses receiving up to Rs 1 lakh a month through UPI QR codes under the P2PM category will continue to enjoy zero MDR.
Existing QR infrastructure will continue to work. A merchant can be moved into the regular P2M category if its UPI collections exceed Rs 1 lakh a month for three consecutive months.
4. Are some sectors charged differently?
Yes. Certain sectors deemed essential or relatively low-margin will have a flat Rs 5 MDR for UPI payments above Rs 2,000 rather than the standard 0.4%.
These include railways, telecom, insurance and fuel, among specified categories. A Rs 20,000 qualifying fuel payment, for example, would attract Rs 5 rather than Rs 80 under the standard rate.
Capital-market transactions also have a lower rate: payments involving mutual funds, securities, stockbrokers and dealers will attract 0.02% MDR, capped at Rs 300.
5. Why is UPI introducing MDR now?
The rationale is to create a more sustainable revenue model for a payments network that has expanded rapidly. UPI processed 2,451 crore transactions worth Rs 29.9 lakh crore in August 2026 alone, according to the figures provided in the government's FAQ.
MDR revenue will be distributed across participants in the payments ecosystem, rather than being a government tax. The framework is intended to support areas such as payment infrastructure, cybersecurity, fraud prevention and innovation. A dedicated fund will also receive 5% of total MDR collections to support UPI acceptance and digital-payment infrastructure among small merchants, particularly in smaller cities and rural areas.
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