NEW DELHI, SEPT 16 : The government has announced a new Merchant Discount Rate (MDR) of 0.4 per cent on UPI payments above ₹2,000 made to merchants, ending nearly six years of a completely zero-charge framework for certain merchant transactions. The new charges will come into effect from October 15, 2026, with the fee capped at ₹300 per transaction.
The Finance Ministry said the new charges will apply only to person-to-merchant (P2M) transactions exceeding ₹2,000. Everyday person-to-person (P2P) transfers will continue to remain completely free, regardless of the transaction amount.
Small-value UPI payments of up to ₹2,000 will also remain exempt. According to the government, such transactions account for more than 95 per cent of P2M transaction volume.
Under the new structure, a ₹3,000 merchant payment will attract an MDR of ₹12, while a ₹50,000 transaction will incur ₹200. For payments of ₹75,000 and above, the fee will be capped at ₹300.
Certain essential and thin-margin sectors, including railways, telecom, insurance, fuel and agricultural inputs, will instead be charged a flat ₹5 MDR per transaction above ₹2,000. Government utility bill payments for electricity, water and piped gas, along with educational fee payments such as school and university fees, will receive similar flat-fee treatment.
Payments involving mutual funds, securities and stockbrokers will attract a lower MDR of 0.02 per cent, capped at ₹300.
The government has also stated that UPI app providers will not be permitted to impose platform fees or hidden charges. Banks have been advised to ensure that merchants do not pass the MDR cost directly on to customers.
Small merchants will continue to receive protection under a separate exemption. Merchants receiving up to ₹1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) framework will continue to pay zero MDR.
The government said only around 4 per cent of merchant transactions are expected to be affected by the new MDR, as most transactions either fall below the ₹2,000 threshold or qualify for exemptions.
Meanwhile, there will be no monthly quota or volume-based limit on free UPI transactions for individuals. Existing daily transaction limits imposed by banks and NPCI will continue to function as risk-management measures rather than commercial charges.
The decision comes after years of calls from parts of the payments and banking industry to reconsider the zero-MDR framework. Industry bodies, banks, the Reserve Bank of India and NPCI have previously raised concerns about the cost of maintaining the UPI payments ecosystem.
RBI Governor Sanjay Malhotra has also said that the cost of the payment infrastructure has to be borne by someone, while noting that the decision on MDR ultimately rests with the government.
