UPI Merchant Discount Rate (MDR) Framework 2026 Explained

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Key takeaways

From 15th October 2026, NPCI will apply a 0.4% Merchant Discount Rate (MDR) on UPI merchant transactions exceeding ₹2,000.
Around 96% of all merchant transactions will remain completely free due to exemptions for small transactions and merchants earning up to ₹1 lakh per month.
High-value payments of ₹75,000 and above have a fee cap of ₹300, while essential services like fuel and railways pay a flat ₹5 rate.
A dedicated fund receiving 5% of total MDR collections will support digital payment expansion among small businesses.

The National Payments Corporation of India (NPCI) introduced a 0.4% Merchant Discount Rate (MDR) framework for merchant UPI transactions above ₹2,000.
This new framework will take effect on 15th October 2026 under the Payment and Settlement Systems Act, 2007.
The policy aims to make the UPI payment network self-sustaining while keeping regular daily payments completely free for common consumers.

MDR is a service fee paid by merchants to banks, payment service providers, and UPI apps for processing digital payments.
This fee is shared among all financial institutions that maintain the underlying digital payment infrastructure.
MDR is not a government tax, and individual customers do not have to pay any extra charge on their purchases.

Merchant payments up to ₹2,000 remain free, while transactions above ₹2,000 incur a standard 0.4% charge.
For high-value payments of ₹75,000 and above, the fee is capped at a maximum of ₹300 per transaction.
Essential sectors like railways, telecom, insurance, fuel, utilities, and agricultural inputs attract a flat fee of ₹5 for payments above ₹2,000.
Capital market transactions such as mutual funds, stockbroking, and securities pay a concessional rate of 0.02%, capped at ₹300.

All Person-to-Person (P2P) transfers remain entirely free of cost, regardless of the money sent.
Small merchants receiving up to ₹1 lakh per month through QR codes under the P2PM category pay zero MDR on all transactions.
Recurring digital payments like UPI AutoPay mandates for bills and subscriptions are exempt from these charges.
According to the Ministry of Finance, nearly 96% of all UPI merchant transactions will remain completely fee-free, with only 4% being affected.

The government instructed banks to ensure that merchants do not pass these MDR costs on to consumers.
UPI payment applications are prohibited from introducing extra platform fees or hidden charges on transactions.
A dedicated development fund will receive 5% of all collected MDR to expand digital payment infrastructure among small merchants.

Introducing MDR provides payment service providers with a reliable revenue model, ensuring long-term financial stability.
The collected funds will help extend digital payment networks into rural and semi-urban regions across the country.
Maintaining free lower-value payments while collecting fees on larger transactions strikes a practical balance for digital growth.