From October 15, 2026, merchants in India will face a new charge of 0.4% on UPI transactions exceeding ₹2,000, marking a shift from the zero-MDR model that has supported rapid digital payments growth.
- 0.4% MDR charged on UPI merchant transactions above ₹2,000
- Small merchants with monthly receipts below ₹1 lakh remain exempt
- Certain sectors like insurance and utilities get reduced flat MDR fees
What happened
Starting October 15, India’s UPI system will introduce a Merchant Discount Rate (MDR) of 0.4% on person-to-merchant transactions exceeding ₹2,000. The MDR will be capped at ₹300 for transaction values ₹75,000 and above. Transactions below ₹2,000 will remain free of MDR charges, maintaining the affordability of smaller payments for merchants. This marks a major shift from the previously zero-MDR regime on UPI payments.
Only merchants classified under the person-to-merchant (P2M) category will be subject to this fee, while person-to-person (P2P) transactions will continue to be toll-free for consumers. Small merchants, defined as those earning up to ₹1 lakh per month via UPI, will continue to have zero MDR charges under the person-to-person-merchant (P2PM) framework. This approach aims to balance merchant costs with the need to sustain UPI's rapid growth.
Why it matters
The introduction of MDR on UPI merchant payments is a key step to establish a sustainable economic model that supports the payment ecosystem’s long-term viability. It addresses growing costs for payment infrastructure providers and acquiring banks. By shifting some cost responsibility to merchants, the UPI framework hopes to maintain free payments for consumers, fostering continued financial inclusion and digital payment adoption.
Sector-specific MDR reductions and exemptions ensure essential services remain affordable. For instance, sectors such as railways, telecom, insurance, fuel, and utilities will face a reduced flat MDR fee of ₹5 on transactions above ₹2,000, instead of the standard 0.4%. This nuanced approach supports both commercial viability for providers and practicality for merchants across industries.
What to watch next
Monitoring the transition of merchants from zero-MDR to MDR liability, especially those exceeding ₹1 lakh monthly collections, will be critical. Acquiring banks and payment service providers will track merchant transaction volumes to enforce changes in MDR charges. How merchants adapt to these costs without passing charges to consumers will be key to preserving UPI’s user-friendly reputation.
The impact on small and medium merchants, particularly in Tier III and IV cities, will also be important to observe. The Payment Council of India has highlighted the need to ensure that MDR introduction does not hinder financial inclusion. Future regulatory adjustments may be necessary depending on how the market and stakeholders respond to this new MDR regime.