Mumbai, India – The National Payments Corporation of India (NPCI) has introduced a charge of 0.4% that most merchants will have to pay banks and payment processors on UPI payments they receive in excess of ₹2,000 per transaction, according to a circular issued on Tuesday. The charge, or Merchant Discount Rate (MDR), will not be applicable to person-to-person UPI transactions and UPI transactions to small vendors. All person-to-merchant transactions of up to ₹2,000 done on UPI or through RuPay debit cards will also be exempt. The new structure will take effect from October 15, 2026.
“For person-to-person (P2P) transactions, there will be no charges at all, irrespective of transaction value,” the Ministry of Finance said in a release, adding that P2P transactions constitute 37% of total UPI transactions in volume terms and 70% in value terms. “Charges will apply only to person-to-merchant (P2M) transactions exceeding ₹2,000.” The government also said banks have been advised to ensure that merchants do not pass on the MDR charges to customers, which had been a key fear during public discussion of the issue.
According to the release, the 0.4% MDR charge will be “shared amongst the payment ecosystem partners, including banks and app providers.” For transactions of ₹75,000 and above, MDR will be capped at ₹300 per transaction. Small merchants receiving up to ₹1 lakh per month via UPI QR codes under the Person-to-Person Merchant classification will not have to pay any MDR. In certain essential sectors, including Railways, telecom, insurance, fuel, and agriculture inputs, transactions over ₹2,000 will incur a flat MDR of ₹5, while payments towards mutual funds, securities, and stock brokers will attract an MDR of 0.02%, capped at ₹300.
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“The new MDR framework will make UPI self-sustainable, give incentives for further expansion in rural and semi-urban areas and maintain competitiveness, while ensuring that a large majority of payments remain free of charge,” the Finance Ministry said. It added that its data analysis shows only 4% of merchant transactions will be impacted by the MDR introduction. A dedicated fund for promoting the use of UPI by small merchants will be set up using 5% of total MDR collections.
