MDR on High-Value Merchant UPI Transactions:
The National Payments Corporation of India (NPCI) has introduced a 0.4% Merchant Discount Rate (MDR) framework for eligible Person-to-Merchant (P2M) UPI transactions above ₹2,000, effective from 15th October 2026.
- Merchant Discount Rate (MDR) is a fee paid by merchants to banks and payment service providers for processing digital transactions. The fee is shared among participants involved in the payment ecosystem, including banks and payment service providers.
- The MDR will not apply to Person-to-Person (P2P) transactions, transactions involving small vendors, and P2M UPI transactions up to ₹2,000 (including payments through RuPay debit cards).
- Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category will remain exempt from MDR on all UPI transactions.
- Sectors such as railways, telecom, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5 per transaction for payments above ₹2,000. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.
- Payments related to mutual funds, securities, stock brokers and dealers will attract a reduced MDR of 0.02%, capped at ₹300, to encourage participation in formal financial markets.
- According to the Ministry of Finance, only around 4% of merchant transactions will be impacted, as most transactions fall below the ₹2,000 threshold or qualify for exemptions. Banks have also been advised to ensure that merchants do not pass MDR costs to customers.
- A dedicated fund using 5% of MDR collections will be created to promote UPI adoption among small merchants and strengthen digital payment inclusion.
- The MDR framework aims to make the UPI ecosystem self-sustainable, support expansion in rural and semi-urban areas, and maintain competitiveness while keeping most UPI transactions free.
