Key Highlights:

  • NPCI's revised MDR framework, effective October 15, 2026, applies a 0.4% MDR (capped at Rs 300) to select P2M UPI transactions above Rs 2,000.
  • Over 95% of low-value UPI P2M transactions, up to Rs 2,000, remain outside the MDR framework.
  • A flat Rs 5 MDR applies to payments above Rs 2,000 in categories like railways, telecom, insurance and fuel.
  • Small merchants under the P2PM framework, receiving up to Rs 1 lakh monthly via UPI, continue to enjoy zero MDR.
  • UPI remains free for consumers, with P2P transactions unaffected; a dedicated fund is proposed to expand UPI acceptance among small merchants.

A Revised Framework for UPI Merchant Charges

The National Payments Corporation of India (NPCI) on Tuesday announced a revised Merchant Discount Rate (MDR) framework for select UPI transactions, under which charges will now apply to certain merchant payments above Rs 2,000, while small merchants and low-value transactions will continue to benefit from zero MDR. The revised framework is set to come into effect from October 15, 2026.

No Change for Consumers

Importantly, UPI transactions will remain entirely free of cost for consumers under the new framework. NPCI clarified that more than 95 per cent of low-value UPI Person-to-Merchant (P2M) transactions, specifically those involving payments of up to Rs 2,000, will remain outside the scope of MDR altogether, meaning the vast majority of everyday UPI transactions made by ordinary consumers will see no change whatsoever.

What the New Charges Look Like

Under the revised structure, a 0.4 per cent MDR will apply to specified P2M UPI transactions above Rs 2,000, with the charge capped at Rs 300 per transaction. Separately, a flat MDR of Rs 5 per transaction will apply to UPI payments above Rs 2,000 made within selected merchant categories, including railways, telecom services, insurance and fuel, sectors that typically involve larger, less frequent transactions compared to routine retail purchases.

Why This Distinction Between Transaction Types Matters

The decision to apply MDR selectively, based on both transaction value and merchant category, rather than uniformly across all UPI payments, reflects an attempt to balance revenue generation for the payments ecosystem against the risk of discouraging UPI adoption among smaller businesses and everyday consumers. By keeping the vast majority of transaction volume, those under Rs 2,000, exempt from any charge, NPCI appears to be preserving UPI's core appeal as a free, frictionless payment method for routine purchases, while introducing charges specifically on higher-value transactions where the cost is less likely to discourage usage.

Person-to-Person Transactions Remain Untouched

Person-to-Person (P2P) transactions will continue to remain entirely free under the revised framework, and P2M transactions up to Rs 2,000 will also remain outside the MDR structure. This means that for the overwhelming majority of everyday use cases, whether sending money to friends and family or making small retail purchases, consumers will continue to use UPI without incurring any transaction charges.

Continued Protection for Small Merchants

Small merchants operating under the Person-to-Person Merchant (P2PM) framework will continue to benefit from zero MDR under the revised structure. This category specifically covers small vendors receiving up to Rs 1 lakh per month through UPI QR payments directly into their bank accounts, a provision designed to support wider digital payment acceptance across India's unorganised retail sector, which includes millions of small shopkeepers, street vendors and micro-enterprises that have increasingly come to rely on UPI as their primary digital payment channel.

A New Fund to Expand UPI Adoption

The revised framework also proposes a dedicated fund to support the expansion of UPI acceptance among small merchants, with particular focus on existing merchant networks as well as Tier-3 and smaller markets. This initiative is aimed at strengthening digital payment infrastructure further and encouraging more small businesses in less digitally penetrated markets to adopt UPI, extending the payment system's reach into areas where digital payment infrastructure may still be relatively underdeveloped.

Where the Collected MDR Will Go

According to the framework, the MDR collected on higher-value transactions will be distributed among various players across the broader UPI ecosystem. This redistribution is expected to support investments in areas such as payment infrastructure, system resilience, cybersecurity and continued innovation, while also helping fund efforts to expand UPI adoption among new users and merchants going forward.

Balancing Sustainability With Accessibility

Taken together, the revised MDR framework appears designed to introduce a sustainable revenue mechanism for the UPI ecosystem, one capable of funding ongoing infrastructure and security investments, without disrupting the fee-free experience that has been central to UPI's mass adoption among Indian consumers and small merchants over the past several years.