New Delhi, September 15: The National Payments Corporation of India (NPCI) has announced a revised Merchant Discount Rate (MDR) framework for select person-to-merchant UPI transactions, effective October 15, 2026.
All person-to-person UPI transfers will continue to remain free, irrespective of the amount transferred, under the newly introduced Merchant Discount Rate (MDR) framework.
The framework will have no impact on individuals sending or receiving money through UPI. No transaction fee, platform fee or other charge can be imposed on such transfers, which account for nearly 70 per cent of the total value of UPI transactions.
Person-to-merchant payments of up to ₹2,000 will also remain free. Transactions covered under the zero-MDR framework for small merchants will continue to be exempt, leaving approximately 96 per cent of all merchant transactions unaffected.
MDR will apply only to specified merchant payments above ₹2,000.
A nominal MDR of 0.4 per cent will apply to eligible person-to-merchant transactions exceeding ₹2,000. For payments of ₹75,000 and above, the charge will be capped at ₹300 per transaction.
Transactions exceeding ₹2,000 in essential and low-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of ₹5 per transaction.
Payments relating to mutual funds, securities, stockbrokers and dealers will attract a lower MDR of 0.02 per cent, capped at ₹300 per transaction.
Small merchants, including street vendors receiving up to ₹1 lakh per month through UPI QR codes under the person-to-person-merchant category, will continue to enjoy zero MDR on all transactions.
The provision is intended to protect street vendors, neighbourhood shops and other small businesses from additional payment-processing costs.
Authorities clarified that MDR is neither a tax nor a fee collected by the government or the National Payments Corporation of India. It is shared among payment-ecosystem participants, including banks, payment-service providers and UPI application providers, to support the operation and expansion of the system.
Customers will not be required to pay the MDR. Banks have been advised to ensure that merchants do not pass the charge on to consumers, while UPI application providers are prohibited from imposing platform fees or hidden charges.
Individuals will continue to have unlimited free use of UPI without monthly quotas, volume restrictions or tiered caps on free transactions.
Existing daily transaction limits, generally ranging from ₹1 lakh to ₹5 lakh depending on the payment category, are security and risk-management safeguards and should not be interpreted as charging thresholds.
According to data cited in the framework, MDR will apply to only about four per cent of merchant transactions. The remaining 96 per cent are either below the ₹2,000 threshold or covered by the small-merchant exemption.
A dedicated fund will also be established to promote UPI adoption among small merchants, with an amount equivalent to five per cent of total MDR collections earmarked for the initiative.
The fund will support wider UPI acceptance, sustained usage and the inclusion of small businesses in India’s digital-payment ecosystem.
Introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee, the framework seeks to ensure UPI’s long-term sustainability while protecting individuals and small merchants from additional charges.
Revenue collected from larger merchant transactions will be used to help banks, payment-service providers and UPI applications expand and improve payment infrastructure, particularly in rural and semi-urban areas.
