Splitting UPI Payments to Avoid MDR? No Daily Cap for Now

New UPI MDR Rules From October 15

India's Unified Payments Interface (UPI) payment system is set to undergo a significant change from October 15, 2026, with the introduction of a Merchant Discount Rate (MDR) on specified merchant transactions above Rs 2,000.

Under the new framework, regular person-to-merchant (P2M) UPI transactions above Rs 2,000 will attract an MDR of 0.4%, with the charge capped at Rs 300 for transactions of Rs 75,000 or more.

Importantly, the MDR is a merchant-side charge. Consumers will continue to make UPI payments without a transaction fee, while eligible small merchants and most low-value transactions remain outside the charge framework.

The government has said around 96% of P2M transactions will remain unaffected, while person-to-person (P2P) transfers will continue to be free regardless of the amount transferred.

Why Are People Talking About Splitting UPI Payments?

The new MDR threshold has raised a practical question: what happens if a customer has a bill above Rs 2,000?

For example, a Rs 6,000 purchase could theoretically be divided into three separate Rs 2,000 UPI payments.

Since payments up to Rs 2,000 are not subject to the standard MDR, splitting a larger payment into smaller transactions could potentially reduce the merchant's MDR liability.

This possibility has prompted questions about whether NPCI will introduce a separate daily or repeated-payment cap for transactions made to the same merchant.

According to people familiar with the matter cited by ETtech, NPCI has no immediate plans for such a special daily cap.

No Special Daily Cap for Repeated Payments for Now

NPCI's decision not to immediately introduce a special daily cap means there is currently no additional rule specifically designed to stop customers from making several UPI payments of Rs 2,000 or less to the same merchant.

Such a cap could have been used to prevent businesses or customers from breaking up larger bills into multiple smaller transactions.

However, the absence of a special cap does not mean UPI users have unlimited transactions.

Banks and NPCI can continue to impose transaction limits for security, risk-management and other operational reasons. These limits are separate from the commercial MDR framework.

Will Consumers Have to Pay UPI Charges?

No.

The introduction of MDR does not mean consumers will suddenly have to pay a fee every time they scan a QR code.

The new framework specifically keeps the customer-facing side of UPI payments free. P2P transactions will remain free, while merchant payments up to Rs 2,000 will also remain outside the standard MDR framework.

NPCI has also clarified that UPI apps will not impose a platform fee on users under the new framework.

The MDR is instead applied within the merchant-side payment ecosystem.

Who Will Pay the MDR?

The MDR will apply to the merchant side of eligible transactions.

For a standard merchant transaction above Rs 2,000, the rate will generally be 0.4%.

For example:

Transaction Value0.4% MDRMDR PositionRs 2,000Rs 8Standard MDR threshold does not applyRs 3,000Rs 120.4% MDRRs 10,000Rs 400.4% MDRRs 50,000Rs 2000.4% MDRRs 75,000Rs 300Rs 300 capRs 1,00,000Rs 400Rs 300 maximum

The Rs 300 cap means eligible transactions of Rs 75,000 or more will not attract an MDR above Rs 300 under the standard category.

Can Merchants Pass the MDR to Customers?

The framework is designed so that merchants cannot pass the MDR directly on to customers as a separate UPI payment charge.

The government has also emphasised that MDR is neither a tax nor a fee collected by the government or NPCI. Instead, it is distributed among participants in the payments ecosystem, including banks and payment application providers.

This distinction is important because the introduction of MDR should not be interpreted as the introduction of a consumer-facing UPI transaction fee.

Why Is NPCI Introducing MDR?

The new MDR framework is intended to support the long-term sustainability of the UPI ecosystem.

UPI has expanded rapidly in India, creating significant requirements for payment infrastructure, cybersecurity, technology and network expansion.

The government has said the framework is intended to support investment in UPI infrastructure, innovation and cybersecurity, while keeping the majority of everyday transactions outside the MDR framework.

The new revenue structure could also affect the economics of payment companies and banks participating in the UPI ecosystem.

Most Small UPI Payments Will Remain Unaffected

The majority of everyday UPI transactions are relatively small.

According to recent data cited by Mint, P2M transactions accounted for 63% of UPI transaction volume in August 2026. Of those transactions, 86% were below Rs 500, while another 10% were between Rs 501 and Rs 2,000.

This means that most routine UPI payments at shops and other merchants will continue to fall below the Rs 2,000 threshold.

The new MDR will therefore primarily affect specified higher-value merchant transactions rather than everyday low-value purchases.

Small Merchants Also Get an Exemption

The framework also provides protection for certain small merchants.

Small merchants in the relevant category receiving up to Rs 1 lakh per month through UPI QR will remain exempt from the MDR, according to the framework reported by Mint.

This is intended to prevent the new charge from disproportionately affecting smaller businesses and low-volume merchants.

Some Sectors Have Different MDR Rates

The standard 0.4% rate does not apply uniformly to every eligible transaction.

Certain essential sectors, including areas such as railways, telecom, insurance, fuel and agricultural inputs, have a separate flat MDR of Rs 5 on transactions above Rs 2,000, according to the reported framework.

Specified capital-market transactions, including certain payments involving securities, mutual funds and stockbrokers, will have a concessional 0.02% MDR, subject to the Rs 300 cap.

This means merchants and businesses need to identify the applicable transaction category rather than assuming that every payment above Rs 2,000 will attract exactly the same charge.

What About GST on MDR?

The new MDR itself does not mean an 18% GST will be charged on the entire UPI transaction.

According to government clarification reported by Mint, the existing GST framework applies to the MDR or fee, rather than the underlying transaction value.

For example, on an eligible Rs 10,000 transaction, a 0.4% MDR would be Rs 40. GST at 18% on that MDR would amount to Rs 7.20, subject to the applicable tax rules.

Eligible GST-registered businesses may be able to claim input tax credit on the GST paid, subject to the applicable conditions.

Does Splitting Payments Mean There Is No Limit?

No.

The absence of a special daily cap for repeated payments to the same merchant should not be confused with the absence of all UPI transaction limits.

Banks and payment platforms can maintain limits for security and risk management.

The key point is that NPCI has not announced a separate commercial daily cap specifically designed to prevent repeated sub-Rs 2,000 payments to the same merchant, at least for now.

The framework could therefore evolve if payment splitting becomes widespread enough to undermine the intended MDR structure.

Could NPCI Introduce a Cap Later?

It remains possible that NPCI could monitor transaction behaviour after the new framework takes effect.

If businesses begin systematically dividing large purchases into multiple transactions solely to stay below the MDR threshold, payment-system participants could potentially consider additional controls.

For now, however, the reported position is that there is no immediate plan for a special daily cap.

This allows NPCI to observe how merchants, banks and payment applications respond to the new MDR system before introducing additional restrictions.

What Does This Mean for Consumers?

For ordinary UPI users, the immediate impact is limited.

Consumers can continue to:

• Make P2P UPI transfers without transaction charges

• Pay merchants up to Rs 2,000 without the standard MDR

• Use UPI QR codes without a customer-facing transaction fee

• Make repeated payments subject to applicable bank and NPCI transaction limits

• Use UPI for everyday purchases without a new platform fee

The MDR is primarily an issue for merchants and the payment ecosystem rather than a direct charge on consumers.

What Does This Mean for Merchants?

Merchants accepting larger UPI payments will need to account for the MDR as part of their payment-processing costs.

For businesses with a large proportion of high-value UPI transactions, the additional cost could become meaningful.

At the same time, merchants will need to monitor whether customers increasingly request payment splitting and whether their payment systems can handle multiple transactions for a single purchase.

Businesses may also need to ensure their accounting and reconciliation systems correctly identify multiple payments against one invoice.

UPI Continues to Remain Free for P2P Transactions

One of the most important aspects of the new framework is that person-to-person UPI transfers remain outside the MDR structure.

A customer transferring Rs 50,000 to a family member, friend or another individual's bank account will not suddenly face a 0.4% MDR because of the new rules.

The government has explicitly stated that the framework has no impact on P2P transactions, regardless of the amount transferred.

This keeps the core peer-to-peer functionality of UPI unchanged.

Bottom Line

The new UPI MDR framework taking effect from October 15, 2026 will introduce a 0.4% MDR on specified merchant transactions above Rs 2,000, with the standard charge capped at Rs 300 for transactions of Rs 75,000 or more.

For now, NPCI has no special daily cap on repeated UPI payments to the same merchant, meaning there is no newly announced commercial restriction specifically designed to prevent multiple sub-Rs 2,000 payments. However, normal bank and NPCI transaction limits for security and risk management continue to apply.

Consumers will continue to use UPI without a transaction fee, while most low-value merchant payments and all P2P transactions remain outside the new MDR framework.

The key issue to watch after October 15 will be whether payment splitting becomes common enough to prompt NPCI and other ecosystem participants to introduce additional safeguards or limits.