UPI's New Merchant Fee: What the 0.4% MDR Framework Changes From October 15

UPI will continue to be free for all person-to-person payments regardless of the amount transferred, and merchant payments up to Rs 2,000 remain free, according to a Ministry of Finance press release distributed through the Press Information Bureau. PIB attributes the framework to amendments to the Payment and Settlement Systems Act, 2007 introduced after deliberations by the UPI Steering Committee. ^{[2] [2] [2] [2]}

Under the new framework, a 0.4 per cent Merchant Discount Rate applies only to specified person-to-merchant transactions above Rs 2,000, with the charge capped at Rs 300 for transactions of Rs 75,000 and above, according to the same PIB release. Mint's report says NPCI described the revised framework as effective from October 15, 2026, and that NPCI said the MDR would be distributed among UPI ecosystem players to support expansion and investment in resilience and cybersecurity. The release states the charge is neither a tax nor a levy collected by the government or NPCI, and is shared among banks, payment service providers and UPI application providers. ^{[2] [2] [4] [4]}

For essential and thin-margin sectors including railways, telecommunications, insurance, fuel and agricultural inputs, transactions above Rs 2,000 carry a flat Rs 5 per transaction, while capital market payments relating to mutual funds, securities, stockbrokers and dealers carry 0.02 per cent capped at Rs 300, according to PIB. The release says small merchants, including street vendors receiving up to Rs 1 lakh per month through UPI QR codes under the person-to-person-merchant category, continue to get zero MDR. It also states customers will not pay the charge and that banks have been advised to ensure merchants do not pass MDR on to customers. ^{[2] [2] [2]}

PIB says data analysis indicates MDR will apply to only about 4% of merchant transactions, meaning roughly 96% remain unaffected because they fall below the Rs 2,000 threshold or under the zero-MDR framework for small merchants. The release says a dedicated fund will be established to promote UPI adoption among small merchants, with an amount equivalent to 5% of total MDR collections contributed to it. ^{[2] [2]}

Mint reports that since 2020 the MDR stood at 0% for UPI and RuPay debit card transactions as the Centre sought to promote digital payments, and that the Union Budget 2026 estimated the subsidy payout at Rs 2,000 crore, compared with Rs 2,196.21 crore in 2025-2026 and Rs 1,922.77 crore in 2024-25. Firstpost reported in September that UPI processed around 24 billion transactions worth about $311 billion in August, a figure Firstpost attributed to Reuters. ^{[4] [4] [1]}