The National Payments Corporation of India (NPCI) has announced a revised Merchant Discount Rate (MDR) framework for select Unified Payments Interface (UPI) transactions, with a 0.4% fee applying to eligible person-to-merchant (P2M) payments above ₹2,000 from October 15, 2026. The charge will be capped at ₹300 per transaction.
The new framework does not introduce a direct UPI charge for consumers. Person-to-person (P2P) transactions, such as sending money to friends or family, will remain free, while eligible merchant transactions of up to ₹2,000 will also continue without MDR.
Under the revised framework, a 0.4% MDR will apply to eligible P2M UPI transactions above ₹2,000. For transactions of ₹75,000 or more, the MDR will be capped at ₹300.
The MDR is a fee associated with processing a merchant payment and is borne by the merchant rather than being directly charged to the consumer under the new framework. The government has also maintained that consumers should not be made to bear the new cost.
The new MDR applies specifically to eligible person-to-merchant payments. Person-to-person UPI transfers will continue to remain free, irrespective of the amount transferred.
This means sending money to a family member or friend through UPI will not attract the new 0.4% MDR. Merchant payments within the ₹2,000 threshold will also remain outside the new MDR structure.
Certain categories will have a separate flat-rate structure. For merchant payments above ₹2,000 in sectors including railways, telecom services, insurance and fuel, the MDR will be ₹5 per transaction instead of the standard 0.4% rate.
The separate rate is intended to prevent the percentage-based MDR from creating a larger fee burden for transactions in these categories.
The revised framework also keeps protections for small merchants. Merchants classified under the person-to-person merchant (P2PM) category will continue to receive zero MDR. This category generally covers smaller businesses and merchants with relatively low monthly UPI collections.
NPCI has also proposed a dedicated fund to support the expansion of UPI acceptance among small merchants. According to Reuters, 5% of total MDR collections will be used for this purpose.
For consumers, there is no direct MDR payment under the new system. The new charge is imposed on eligible merchant transactions, while P2P transfers and payments up to ₹2,000 remain free.
However, as the MDR is a cost for merchants, its broader impact on prices or service charges could depend on how individual businesses respond. The current framework itself does not authorise consumers to be directly charged the 0.4% MDR.
The revised MDR framework will come into effect on October 15, 2026, marking a change in the fee structure for selected higher-value UPI merchant payments while keeping everyday low-value and person-to-person transactions free.
