- The government will not review the MDR decision on select UPI transactions above Rs 2,000
- The new UPI fee structure begins October 15 with MDR for large merchant payments capped at Rs 300
- Around 4% of merchant UPI transactions will be affected; 95% will remain outside the MDR framework
The government is not considering a review of its decision to introduce a merchant discount rate (MDR) on select Unified Payments Interface (UPI) transactions above Rs 2,000, government sources said.
The government expects UPI transaction volumes to continue increasing next year despite the introduction of the new fee framework, according to the sources.
The new UPI fee structure, announced by the National Payments Corporation of India (NPCI), will come into effect from October 15. Under the framework, large merchant payments above Rs 2,000 will attract an MDR of 0.4%, subject to a cap of Rs 300 per transaction.
Select merchant categories, including railways, telecom services, insurance and fuel, will instead attract a flat MDR of Rs 5 for UPI payments above Rs 2,000. Capital-market transactions, including payments involving mutual funds, securities, stock brokers and dealers, will attract a lower MDR of 0.02%, capped at Rs 300 per transaction.
The revised framework is expected to have a limited impact on overall UPI usage, with around 4% of merchant transactions expected to be affected. More than 95% of UPI person-to-merchant transactions will remain outside the MDR framework.
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Small merchants operating under the person-to-person-to-merchant (P2PM) model will continue to enjoy zero MDR. There will also be no monthly quota or cap on free UPI usage for individual users under the applicable free framework.
UPI person-to-person transactions will remain free, meaning users can continue to transfer money to friends and family without an MDR charge.
The Finance Ministry had also clarified that banks and payment system providers cannot impose direct or indirect charges on UPI transactions of up to Rs 2,000.
Under the revised structure, 5% of total MDR collections will be allocated to a dedicated fund aimed at supporting UPI acceptance among small merchants.
The MDR revenue will be distributed among participants across the UPI ecosystem and is expected to support areas including expansion of the network, cybersecurity and innovation. The revised rates are also expected to remain lower than charges applicable to other digital payment instruments such as cards and wallets.
Banks have been advised to ensure that merchants do not pass the MDR cost on to customers. Therefore, merchants covered under the new framework are not expected to levy an additional charge on consumers for making UPI payments.
UPI has continued to record strong growth ahead of the implementation of the new MDR framework. According to NPCI data, UPI processed 24.51 billion transactions worth Rs 29.82 lakh crore in August 2026.
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