NPCI Announces MDR for UPI; Merchant Transactions Above Rs 2,000 to Attract 0.4% Charge

NPCI Announces New UPI Merchant Discount Rate

The National Payments Corporation of India (NPCI) has announced a new Merchant Discount Rate (MDR) structure for select UPI merchant transactions.

Under the new framework, a 0.4% MDR will apply to eligible person-to-merchant (P2M) UPI transactions above Rs 2,000. The new charges will take effect from October 15, 2026.

The announcement marks a significant change to the economics of UPI merchant payments, which have traditionally operated without a broad MDR on ordinary transactions.

What Is MDR on UPI Transactions?

Merchant Discount Rate, or MDR, is a fee associated with processing a digital payment. It is generally paid by the merchant rather than being directly deducted from the customer's bank account.

The fee is distributed among participants in the payment ecosystem, depending on the payment arrangement, including banks and payment service providers.

Under the new UPI structure, the announced 0.4% MDR applies to selected merchant transactions above the Rs 2,000 threshold.

UPI Transactions Above Rs 2,000 to Attract 0.4%

From October 15, 2026, eligible P2M UPI transactions above Rs 2,000 will attract an MDR of 0.4%.

For example, on an eligible Rs 5,000 merchant payment, 0.4% would amount to Rs 20 in MDR. On a Rs 10,000 transaction, the MDR would be Rs 40.

The important point is that this is a merchant-side charge and does not mean that consumers will automatically pay an additional 0.4% on their UPI payments.

Rs 300 Cap on Transactions of Rs 75,000 and Above

NPCI has also introduced a maximum cap for general merchant transactions.

For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction. This prevents the percentage-based charge from increasing indefinitely as the transaction value rises.

For instance, a 0.4% MDR on Rs 75,000 would equal Rs 300. For a transaction of Rs 1 lakh, 0.4% would normally equal Rs 400, but the applicable MDR would remain capped at Rs 300 under the announced structure.

Railways, Telecom, Insurance and Fuel Get Flat Rs 5 MDR

NPCI has provided a separate structure for certain categories of essential services.

Transactions above Rs 2,000 involving railways, telecom services, insurance and fuel will attract a flat MDR of Rs 5 per transaction rather than the standard 0.4% rate.

This means that a large payment in one of these specified categories will not result in an MDR that rises proportionately with the transaction value.

Will Customers Have to Pay UPI Charges?

The new MDR is aimed at merchant transactions and does not mean that customers will be charged directly for using UPI.

Reports citing NPCI indicate that merchants are responsible for the MDR. Merchants are also not permitted to pass the charge on to consumers as a separate UPI fee.

Therefore, consumers making eligible UPI payments should not interpret the announcement as a blanket 0.4% charge on their UPI transactions.

Person-to-Person UPI Transactions Remain Free

The new MDR applies to selected person-to-merchant transactions.

Person-to-person, or P2P, UPI transfers between individuals remain outside this MDR framework and continue to be free.

For example, transferring money from one individual's bank account to another person's account through UPI will not attract the newly announced 0.4% MDR.

UPI Payments Below Rs 2,000

Transactions up to Rs 2,000 continue to receive protection under the existing framework for small-value UPI payments.

The Finance Ministry has separately clarified that UPI transactions up to Rs 2,000, along with eligible RuPay debit-card transactions, cannot attract bank or payment-service-provider charges under the notified provisions.

The new MDR structure therefore focuses on selected higher-value merchant payments rather than introducing a charge across all UPI transactions.

Why Has NPCI Introduced MDR?

The new MDR structure is intended to support the long-term sustainability of India's digital payments ecosystem.

UPI requires significant investment in payment infrastructure, cybersecurity, innovation, transaction processing and customer support. A modest MDR on selected high-value merchant payments can help create a revenue stream for participants in the payments ecosystem.

The move comes as UPI continues to operate at an enormous scale across India.

UPI Continues to Handle Massive Transaction Volumes

UPI has become one of India's most widely used digital payment systems.

According to Reuters, UPI processed around 24 billion transactions worth approximately $311 billion in August 2026 alone. The scale of transactions highlights why the financial sustainability of the UPI ecosystem has become increasingly important.

The introduction of MDR on selected high-value merchant payments is therefore likely to have implications for banks, payment companies, merchants and the wider digital payments industry.

What Does the New MDR Mean for Merchants?

Merchants accepting eligible UPI payments above Rs 2,000 will need to account for the MDR as part of their payment-processing costs from October 15.

For businesses with a high proportion of large-ticket UPI payments, the cumulative cost could become an important operating consideration.

However, the Rs 300 cap for transactions of Rs 75,000 and above limits the maximum MDR for general merchant transactions. Essential-service categories also receive the separate Rs 5 flat-rate treatment.

What Does It Mean for Consumers?

For consumers, the immediate impact is expected to be limited because the MDR is charged on the merchant side.

Customers can continue making UPI payments without paying a separate 0.4% UPI transaction fee. P2P transactions also remain free.

However, businesses could potentially factor payment-processing costs into their broader pricing decisions. The direct UPI payment itself should not carry an additional consumer MDR under the announced framework.

Why Is the Announcement Significant?

The introduction of an MDR on selected UPI merchant payments represents an important change in India's digital-payment ecosystem.

UPI's rapid expansion has been supported by a model in which consumers have generally been able to make payments without transaction charges. The new framework attempts to introduce a limited merchant-side revenue mechanism while protecting small-value transactions and consumers from direct charges.

The impact will depend on how banks, payment providers and merchants implement the new structure from October 15.

Key UPI MDR Rules From October 15, 2026

The major points of the new UPI MDR framework are:

• 0.4% MDR on select P2M UPI transactions above Rs 2,000.

• New MDR structure takes effect from October 15, 2026.

• MDR capped at Rs 300 for general merchant transactions of Rs 75,000 and above.

• Railways, telecom, insurance and fuel transactions above Rs 2,000 will attract a flat Rs 5 MDR.

• P2P UPI transactions remain free.

• Consumers are not directly charged the MDR.

• Small-value transactions up to Rs 2,000 continue to receive protection from such charges under the notified framework.

Bottom Line

NPCI has announced a 0.4% MDR on select person-to-merchant UPI transactions above Rs 2,000, with the new system scheduled to take effect from October 15, 2026.

The MDR will be capped at Rs 300 for transactions of Rs 75,000 and above, while specified categories such as railways, telecom, insurance and fuel will have a flat Rs 5 MDR on eligible transactions.

The key takeaway for consumers is that the new MDR is a merchant-side charge, not a blanket fee on UPI users. Person-to-person UPI transfers will remain free, while the new framework primarily affects higher-value merchant payments.

The move could provide additional financial support for India's rapidly expanding digital payments infrastructure while maintaining protection for small-value UPI transactions.