New Delhi: India’s Unified Payments Interface (UPI) payment ecosystem is set for a significant change from October 15, 2026, with a new Merchant Discount Rate (MDR) being introduced on select high-value Person-to-Merchant (P2M) transactions.
Under the new framework, eligible UPI merchant transactions above ₹2,000 will attract an MDR of 0.4%. However, the charge will be capped at ₹300 per transaction for payments of ₹75,000 and above.
The change does not mean that consumers will start paying a UPI transaction fee. Person-to-Person (P2P) UPI transfers will continue to remain free, while payments to merchants up to ₹2,000 will also remain free.
What is changing from October 15?
The new framework specifically targets eligible P2M transactions, meaning payments made by an individual to a business or merchant.
The basic structure is:
| UPI payment | MDR from October 15 |
|---|---|
| P2P payment between individuals | No MDR |
| Merchant payment up to ₹2,000 | No MDR |
| Merchant payment above ₹2,000 | 0.4% MDR |
| Merchant payment of ₹75,000 and above | Maximum ₹300 MDR |
For example, a ₹3,000 eligible merchant payment would attract an MDR of ₹12, while a ₹50,000 payment would attract ₹200. For a ₹75,000 or higher transaction, the maximum MDR would be ₹300.
Consumers will not be directly charged
One of the key features of the new framework is that the MDR is a merchant-side charge.
The Ministry of Finance’s FAQ states that merchants cannot pass the MDR on to customers. This means a customer paying ₹10,000 through UPI to an eligible merchant should not be asked to pay an additional UPI fee simply because the transaction crosses the ₹2,000 threshold.
The government has also clarified that UPI payments up to ₹2,000 remain protected from direct or indirect charges under the applicable framework.
P2P UPI transfers remain free
People sending money to friends, family or other individuals will not be affected by the new MDR.
Person-to-Person (P2P) transactions remain free regardless of the amount transferred. The new MDR framework is focused on specified Person-to-Merchant payments.
So, for example, transferring ₹5,000 to a friend through UPI will not attract the new 0.4% MDR.
Small-value merchant payments remain free
The ₹2,000 threshold is another major part of the framework.
Merchant UPI payments of ₹2,000 or less will remain free, meaning everyday low-value purchases made through UPI will not be affected by the new MDR.
According to the government’s FAQ, transactions below the threshold account for more than 95% of UPI P2M transaction volume, meaning the vast majority of merchant transactions by volume will continue without MDR.
Small merchants get additional exemptions
The framework also provides protection for smaller merchants.
According to the government FAQ and reporting on the framework, small merchants receiving up to ₹1 lakh per month through QR-code UPI payments are eligible for exemption from MDR. A dedicated fund is also being planned to support small merchants and expand digital payment infrastructure, particularly in smaller and rural markets.
This means the impact of the new MDR structure will not be uniform across all businesses.
Some sectors will have a flat ₹5 MDR
Not every eligible transaction above ₹2,000 will be charged at 0.4%.
Certain specified categories — including sectors such as railways, telecom, insurance and fuel — will have a flat ₹5 MDR per transaction above the ₹2,000 threshold instead of the standard percentage-based rate.
The structure is intended to prevent percentage-based charges from becoming disproportionately expensive in essential and relatively low-margin sectors.
Why is MDR being introduced?
MDR, or Merchant Discount Rate, is the fee associated with processing a digital payment. Unlike a government tax, it is distributed among participants in the payment ecosystem.
The government says the new framework is intended to support the long-term sustainability of UPI and help fund areas including payment infrastructure, cybersecurity, innovation, resilience and customer service.
UPI has grown into one of the world’s largest digital payment systems, increasing the need for continued investment in the infrastructure that supports its enormous transaction volumes.
What does this mean for ordinary UPI users?
For most consumers, the day-to-day experience of using UPI is expected to remain largely unchanged.
A customer paying ₹500 at a shop, transferring ₹5,000 to a family member or making another P2P transfer will continue to do so without the new MDR.
The change becomes relevant mainly when making eligible merchant payments above ₹2,000. Even then, the MDR is charged to the merchant rather than the customer.
The bigger picture
The new framework marks a shift from UPI’s long-standing zero-MDR model towards a targeted commercial structure for selected higher-value merchant transactions.
At the same time, the framework retains protections for everyday users through the ₹2,000 threshold, keeps P2P transfers free and provides exemptions and special provisions for smaller merchants and selected sectors.
With the new rules scheduled to take effect on October 15, 2026, banks, payment service providers, fintech platforms and merchants will have to update their systems and processes ahead of implementation.
Key Takeaways
- 0.4% MDR will apply to eligible P2M UPI transactions above ₹2,000.
- The MDR will be capped at ₹300 for transactions of ₹75,000 and above.
- Consumers will not directly pay the MDR.
- P2P UPI transactions remain free, regardless of amount.
- Merchant payments of ₹2,000 or below remain free.
- Eligible small merchants receiving up to ₹1 lakh per month through QR-code UPI payments are exempt.
- Certain sectors, including railways, telecom, insurance and fuel, will have a flat ₹5 MDR on eligible transactions above ₹2,000.
- The new framework takes effect from October 15, 2026.
For consumers, UPI remains largely unchanged. For merchants, however, October 15 marks a new phase in how higher-value digital payments are processed and funded.
