MONEY
MDR of 0.4% on UPI trades above Rs 2,000; no charge on person- to-person payment
- IBJ Bureau
- Sep 16, 2026
The government has introduced a 0.4 per cent Merchant Discount Rate (MDR) on person-to-merchant (P2M) UPI transactions above Rs 2,000.
The new framework comes into effect from October 15, ending nearly six years of zero-fee UPI merchant payments.
The government, however, has ring-fenced person-to-person (P2P) payments and low-value merchant transactions from the levy while stressing that consumers will continue to use UPI free of cost.
“Customers will not be required to pay any charge when making such payments through UPI,” the Finance Ministry has said, clarifying that the MDR is a charge within the merchant payment ecosystem and “not a charge on customers making UPI payments”.
Individuals will also continue to have unlimited free UPI usage, with no monthly quotas, volume restrictions or tiered caps on free transactions.
The government has said that P2M transactions of up to Rs 2,000 account for more than 95 per cent of total P2M transaction volume and will not attract any MDR.
The MDR will be capped at Rs 300 for transactions of Rs 75,000 and above.
The commission will be distributed among participants in the UPI ecosystem, including banks and app providers.
The government and the National Payments Corporation of India (NPCI) have said that the revenue will support infrastructure resilience, cybersecurity, innovation and customer service.
The MDR applies to direct user-account-to-merchant-account UPI payments.
Credit-linked transactions, including RuPay Credit Card on the UPI and pre-sanctioned credit lines, will follow separate rules.
Small merchants receiving up to Rs 1 lakh a month through UPI QR codes under the person-to-person-merchant (P2PM) framework will continue to pay zero MDR on all transactions.
The framework provides separate rates for sectors where high transaction volumes or thin margins could make the standard MDR burdensome.
Railways, telecom, insurance, fuel and agricultural inputs will attract a flat Rs 5 MDR on transactions above Rs 2,000.
These sectors account for nearly 17 per cent of the P2M transaction volume but around 46 per cent of its value.
The same flat-fee treatment will apply to government utility bill payments, including electricity, water and piped gas, as well as payment of education fee, such as school and university fees.
Payments involving mutual funds, securities, stockbrokers and dealers will attract a lower MDR of 0.02 per cent, capped at Rs 300
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