UPI transactions above Rs 2,000 to attract 0.4% MDR; check key details

Starting October 15, the government will impose a Merchant Discount Rate (MDR) on certain Person-to-Merchant (P2M) UPI transactions, affecting payments over Rs 2,000. The NPCI announced this framework, which aims to establish a steadier commercial model for UPI. The MDR will apply to 0.4% of the transaction amount, with a cap of Rs 300 for payments of Rs 75,000 or more. Transactions of up to Rs 2,000 will remain free, accounting for more than 95% of P2M UPI transactions, as reported in the official FAQs.

The new structure is designed to ensure the financial sustainability of the UPI ecosystem. The MDR proceeds will be allocated toward investments in payment infrastructure, cybersecurity, innovation, and customer service. This shift leaves the majority of everyday UPI payments unaffected by the charge. Small merchants, including those receiving up to Rs 1 lakh monthly via UPI QR codes, are exempt from the MDR.

Specific payment amounts correlate with their respective MDR rates: a Rs 3,000 transaction incurs Rs 12 in MDR, while a Rs 50,000 transaction attracts Rs 200. Notably, MDR will be capped at Rs 300 for transactions of Rs 75,000 or more, meaning a Rs 1 lakh payment would still incur Rs 300 in fees, rather than the Rs 400 suggested by a 0.4% rate. Select sectors, such as railways, telecom, insurance, and fuel, will face a flat MDR of Rs 5 for transactions above Rs 2,000.

Capital-market transactions, including payments to mutual funds, stockbrokers, and securities dealers, will incur an MDR of 0.02%, also capped at Rs 300. Importantly, MDR will be borne by merchants, not passed on to consumers, ensuring that users pay the listed price without any additional fees or transaction charges from UPI apps.

The NPCI introduced these charges to address the substantial operational costs of maintaining UPI, which currently stands at around Rs 20,000 crore annually. By generating revenue from MDR, the NPCI aims to reduce reliance on government subsidies—a short-term measure for digital-payment adoption rather than a permanent funding source. In August 2026 alone, UPI processed 2,451 crore transactions worth Rs 29.9 lakh crore, underscoring the critical role of UPI in the current financial landscape.