A new Merchant Discount Rate (MDR) system for certain UPI transactions has been announced by the government. Merchants will be charged a fee for person-to-merchant (P2M) payments over ₹2,000 under this system, whereas customers will keep using the Unified Payments Interface (UPI) at no cost.
Effective October 15, 2026, this new system will be implemented. A 0.4% MDR applies to UPI transactions over ₹2,000 under the standard P2M framework. Any transactions of ₹75,000 and above will have a maximum Merchant Discount Rate (MDR) cap of ₹300 per transaction.
Merchants must pay this charge to their acquiring bank; it cannot be passed on to customers. Customers will not incur any transaction fees for making UPI payments. Unified Payments Interface or UPI app providers will also be prohibited from levying platform fees or any other charges on UPI payments.
For Instance, on a UPI Payment of ₹3,000, the Merchant Would pay ₹12 as MDR (calculated at 0.4%).
For instance, on a UPI payment of ₹3,000, the merchant would pay ₹12 as MDR (calculated at 0.4%). For a payment of ₹50,000, the MDR would be ₹200. On a transaction of ₹1 lakh, the calculated amount at 0.4% would be ₹400, but the merchant would pay ₹300, as the cap applies to transactions of ₹75,000 and above.
A separate flat-rate structure will apply to specific merchant categories. In sectors such as railways, telecom services, insurance, and fuel, an MDR of ₹5 per transaction will apply to payments exceeding ₹2,000, instead of the standard 0.4% rate. For instance, regarding fuel payments, petrol pump operators will be charged a flat MDR of ₹5 on transactions exceeding ₹2,000; no MDR will apply to fuel payments below this amount.
Similarly, a flat MDR of ₹5 will apply to insurance premium payments exceeding ₹2,000. Payments exceeding ₹2,000 for government utility services, such as electricity, water, and piped natural gas, will also attract an MDR of ₹5.
Capital market transactions fall under a separate MDR structure. UPI payments involving mutual funds, securities, stockbrokers, dealers, and investment platforms will attract an MDR of 0.02%, capped at a maximum of ₹300.
The new MDR framework does not apply to Person-to-Person (P2P) UPI transactions. Money transfers between individuals, such as sending funds to family or friends or moving money between one’s own bank accounts, will remain free of charge.
Small merchants falling under the Person-to-Person-Merchant (P2PM) framework will also continue to receive payments without incurring MDR charges. The FAQs define these as small vendors who receive payments of up to ₹1 lakh per month directly into their accounts via UPI QR codes. For an exempted P2PM merchant, receiving a single payment exceeding ₹2,000 will not automatically trigger an MDR charge.
It is also decided in this framework that no MDR will apply to P2M transactions of less than ₹2,000 under the standard P2M structure. Based on the FAQs, over 95% of P2M UPI transactions by volume stay within this limit. The government has stated that revenue generated from MDR will be utilised to strengthen infrastructure within the UPI ecosystem and to enhance innovation, cybersecurity, and customer service.
A dedicated fund is also proposed to support digital payment infrastructure and merchant onboarding, particularly for small merchants in rural areas and Tier-3 to Tier-6 centers.
Citing the massive scale of UPI, the FAQ discusses the need for a more commercially sustainable funding model. According to the document, in August 2026 alone, UPI processed 2,451 crore transactions worth ₹29.9 lakh crore. It is estimated that maintaining UPI operations, including server bandwidth, fraud prevention systems, and technical support from banks, incurs an annual cost of approximately ₹20,000 crore.
For customers, the key takeaway is that MDR is a charge borne by the merchant. Customers will not be charged for making Unified Payments Interface (UPI) payments, and merchants covered under the new framework will not be permitted to pass the Merchant Discount Rate (MDR) burden on to buyers; customers will continue to pay only the listed price when making Unified Payments Interface (UPI) payments.
Also Read: BRICS 2026 Summit: PM Modi Thanked Leaders for Making the BRICS Summit in Delhi “Productive.”
