On 15 September 2026, the National Payments Corporation of India (NPCI) released a detailed FAQ document explaining the proposed framework for Merchant Discount Rate (MDR) on select UPI Person-to-Merchant (P2M) transactions.
The document clarifies that ordinary consumers will continue to use UPI free of charge, while a nominal MDR will apply only to specified merchant transactions above ₹2,000.
The MDR framework will take effect from 15 October 2026, allowing banks, payment aggregators, fintech platforms, and other ecosystem participants adequate time to implement the required operational changes.
Key Takeaways:
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The revised framework applies only to Person-to-Merchant (P2M) UPI transactions and does not affect Person-to-Person (P2P) transactions, which will continue to remain free irrespective of transaction value.
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The UPI and Services Steering Committee, headed by the NPCI, has outlined a revised MDR framework introducing a 0.4% charge on specified UPI P2M transactions exceeding ₹2,000.
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For high-value transactions, the MDR is subject to a maximum cap of ₹300 per transaction.
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The FAQ provides the following examples to explain the MDR payable by merchants on different transaction amounts:
Transaction Amount
Applicable MDR
MDR Paid by Merchant
₹2,000
Nil
₹0
₹3,000
0.40%
₹12
₹50,000
0.40%
₹200
₹75,000 and above
Fixed ₹300 cap
₹300
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UPI transactions of up to ₹2,000 will remain unaffected and continue to be free.
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NPCI has stated that such transactions constitute more than 95% of the total volume of UPI merchant transactions.
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NPCI has clarified that MDR is not a tax or fee collected by the Government. Instead, it is distributed among participants in the UPI ecosystem to support infrastructure, cybersecurity, innovation, and customer service.
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UPI MDR remains significantly lower than traditional payment acceptance costs, with credit card MDRs typically ranging between 1.5% and 2.5%, and debit card MDRs capped up to 0.90%.
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A dedicated fund is proposed to support digital payment infrastructure, merchant onboarding and UPI expansion among small merchants, particularly in Tier III-VI cities, the North-East, Jammu & Kashmir and Ladakh.
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The fund will provide financial assistance and incentives to acquiring banks and payment aggregators to encourage merchant onboarding, sustained UPI usage and greater inclusion of small businesses in the digital payments ecosystem. The detailed framework for the fund will be finalised in consultation with the Reserve Bank of India (RBI) within the next three months.
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Consumers will not have to pay any fee for scanning UPI QR codes at local shops, street vendors or other merchants, regardless of the transaction value.
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UPI Person-to-Person (P2P) transactions, including transfers to family, friends and self-transfers, will continue to remain free for both sender and recipient.
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NPCI has clarified that credit-linked UPI payments, such as RuPay Credit Cards linked to UPI or pre-sanctioned bank credit lines, are not covered by the proposed MDR framework and will continue to operate under existing credit card and credit product guidelines.
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UPI application providers are expressly prohibited from charging any platform fee or similar charge on UPI transactions.
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Merchants will not be permitted to pass MDR charges on to customers, and consumers will continue to pay only the listed price for goods and services.
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Small merchants operating under the P2PM framework and receiving up to ₹1 lakh per month through UPI QR codes will continue to enjoy zero MDR.
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GST registration will not be required for small merchants to qualify for zero MDR benefits under the P2PM framework. Eligibility will be determined based on monthly collection thresholds and merchant categorisation, irrespective of GST registration status.
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Existing QR code infrastructure will continue to function normally, and merchants will not need to replace or upgrade their QR codes.
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Even where a small merchant receives a payment above ₹2,000, MDR applicability will depend on the merchant’s overall categorisation and eligibility under the exempted tiers.
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Certain sectors, including railways, telecom services, insurance, fuel and other notified categories, will attract a flat MDR of ₹5 per transaction for payments above ₹2,000 instead of the standard 0.4% rate, helping keep essential services and utility related digital payments affordable.
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Educational institutions, including schools, colleges, universities and examination bodies, will benefit from concessional fee structures or capped MDR rates for transactions above ₹2,000, while payments up to ₹2,000 will remain MDR free.
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Capital market transactions, including mutual funds, securities, stockbrokers, dealers and investment-platform payments, will attract a concessional MDR of 0.02%, subject to a maximum cap of ₹300.
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The FAQ states that revenue generated through MDR will be utilised for technology upgrades, fraud prevention systems, cybersecurity infrastructure and long-term sustainability of the UPI ecosystem.
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It also clarifies that the MDR framework is intended to support investment in UPI infrastructure, cybersecurity, innovation and customer service, while ensuring that UPI remains the most affordable digital payment acceptance mechanism in India.
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Users have been advised to rely only on official updates issued by the Ministry of Finance, RBI, NPCI and PIB, and not on unverified social media messages relating to UPI charges.
FAQs
Q. 1. What is Merchant Discount Rate (MDR)?
Merchant Discount Rate (MDR) is a fee paid by merchants for accepting digital payments, which helps support payment infrastructure, cybersecurity, innovation and customer service within the digital payments ecosystem.
Q. 2. Will consumers be charged for using UPI?
No. Consumers can continue using UPI free of cost. UPI services will remain free for individuals making payments through UPI.
Q. 3. Which UPI transactions will attract MDR?
A MDR of 0.4% will apply to Person-to-Merchant (P2M) UPI transactions above ₹2,000. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.
Q. 4. Will small merchants be affected?
No. Small merchants operating under the P2PM framework and receiving up to ₹1 lakh per month through UPI QR codes will continue to enjoy zero MDR.
Q. 5. When will the detailed framework for the small merchant fund be finalised?
The detailed framework for the proposed small merchant fund will be finalised in consultation with the RBI within the next three months, outlining funding priorities and incentives to support wider UPI adoption among small businesses.
Q. 6. Who will decide the implementation and enforcement of MDR caps?
The operational parameters, fee distribution models and category-wise MDR caps will be decided by the UPI and Services Steering Committee, headed by the NPCI.
Also Read: Centre ensures charge-free Digital Payments: No fees on RuPay and UPI transactions up to ₹2,000
[NPCI FAQs on UPI MDR, dated 15-9-2026]