The National Payments Corporation of India (NPCI) has introduced a revised Merchant Discount Rate (MDR) framework under which UPI transactions above ₹2,000 will attract a fee of 0.4 per cent from October 15, 2026. The charge applies to person-to-merchant (P2M) payments, with the MDR capped at ₹300 per transaction, and consumers will continue to transact free of cost, according to NPCI.
The announcement, made on Tuesday, clarifies that the new fee structure applies only to merchant transactions exceeding ₹2,000. For a transaction of ₹2,000, the 0.4 per cent MDR amounts to ₹8. Person-to-person (P2P) transfers and P2M payments up to ₹2,000 remain outside the revised framework, as do transactions made through UPI QR codes for merchants receiving up to ₹1 lakh per month. The Union Government, in its clarification, stated that the fee is part of the merchant-side framework, and consumers will not bear any charge.
Scope and Exemptions
The revised framework specifies that the 0.4 per cent MDR applies only to P2M UPI transactions above ₹2,000, with a cap of ₹300 per transaction for payments of ₹75,000 and above. According to official estimates, payments above ₹2,000 are expected to cover about 5 per cent of all UPI transactions but account for 65 per cent of the total transaction value. The government noted that small merchants—those receiving up to ₹1 lakh a month through UPI QR codes—will not be charged MDR, and payments below ₹2,000 remain free even for established commercial merchants.
NPCI, in an FAQ, said that UPI transactions will remain free of cost for consumers, and the fee structure is designed to support the sustainability of the payment ecosystem. The government's clarification also mentioned that the framework aims to make costs predictable for businesses while keeping consumer payments free.
Impact and Rationale
The new MDR framework has been attributed to NPCI, which said the revised rates are intended to encourage digital payments while ensuring the viability of payment service providers. The government's announcement, as reported, describes the changes as a measure to balance costs and maintain the growth of UPI. Some reports noted that the fee applies only to select merchant transactions, with a single UPI payment above ₹2,000 not by itself making a small merchant liable for MDR.
While the announcement has been met with mixed reactions, with some observers criticising the move as potentially burdensome for small merchants, others see it as a necessary step for the long-term sustainability of the payments system. The government has stated that the framework will come into effect from October 15, 2026, giving merchants and payment providers time to adapt.
Official Statements
The National Payments Corporation of India (NPCI) said in a statement that the revised MDR framework will apply to P2M transactions above ₹2,000 from October 15, 2026. The finance ministry, in its announcement, said the fee is capped at ₹300 per transaction, and consumers will continue to transact free of cost. Government sources clarified that the fee structure is part of the merchant discount rate, not a charge on users. The statement also said that payments up to ₹2,000 are exempt, and the government described the move as a step to make costs predictable for businesses.
As the implementation date approaches, merchants and payment aggregators are expected to adjust their systems to accommodate the new rates. The NPCI said the framework is designed to balance the interests of all stakeholders while ensuring that UPI remains accessible and affordable for consumers.