Discover how the Indian government's new 0.4% Merchant Discount Rate (MDR) on UPI payments above Rs 2,000 will impact merchants and digital transactions, with key exemptions for small businesses and person-to-person transfers.
Key Points
- A 0.4% Merchant Discount Rate (MDR) will apply to UPI payments over Rs 2,000 made to merchants, effective October 15.
- UPI transactions up to Rs 2,000 and all person-to-person (P2P) transactions remain free of MDR charges.
- Small merchants with monthly receipts up to Rs 1 lakh are exempt from MDR, ensuring continued support for small businesses.
- Specific caps and flat fees are introduced for high-value transactions and essential sectors like telecom, insurance, and fuel.
- The full MDR framework and threshold structure are scheduled to be implemented from October 15, 2026.
The government has introduced a 0.4 per cent fee on UPI payments of more than Rs 2,000 made to merchants from October 15.
This new Merchant Discount Rate (MDR) framework outlines specific charges and exemptions for various UPI transactions.
Understanding New UPI Transaction Charges
Here are some FAQs to understand how the new payment will work:
Is there an exemption limit up to which the MDR will not be charged?
Yes, there is. The government has announced that no MDR will be levied on UPI transactions up to Rs 2,000.
What about transactions exceeding this amount?
An MDR of 0.4% will be levied on person to merchant transactions above Rs 2,000.
Can you illustrate with an example?
Let's say you have done a Rs 3,000 purchase, the 0.4% rate on this works out to a Rs 12 fee -- which will be paid by the merchant to its acquiring bank.
Who will get the commission on this transaction?
The commission will be shared amongst the payment ecosystem partners including banks.
I am making a UPI payment of Rs 5000 to my friend, will that attract an MDR?
No charges on person-to-person (P2P) transactions will be levied, irrespective of the transaction value.
Is there a limit on how much MRD can be levied?
The MDR has been capped at Rs 300 per transaction on high-value payments of Rs 75,000 and above.
What about bill payments? Will they also attract an MDR?
Essential sectors like telecom, insurance, and fuel sectors will pay a flat MDR of Rs 5 per transaction.
And utility bill payments?
Public utility payments such as electricity distribution, municipal water charges, and piped natural gas fall under designated Industry programme category. For utility bill payments exceeding ₹2,000, a flat concessional MDR of ₹5 applies, rather than a 0.4% variable rate.
Utility transactions under ₹2,000 carry zero MDR.
Okay, what about mutuals funds and stock transactions?
Payments towards mutual funds and stock brokers will attract an MDR of 0.02%, capped at Rs 300.
The real worry is over small merchants, how will they be affected?
Small merchants receiving up to Rs 1 lakh per month will enjoy mandatory zero MDR for all transactions.
Can UPI app providers then charge extra for transactions?
UPI app providers have been prohibited from levying platform fees or any hidden charges.
That's fine but won't merchants pass on the MDR to customers?
Banks have been advised by the RBI to ensure that merchants do not pass the MDR charges to customers for UPI payments.
Is there any restrictioons on free UPI transactions among persons?
No, no monthly quotas, volume limits, or tiered caps have been mandated on free UPI transactions for persons.
Will there be a daily transaction limit on UPI payments?
Daily transaction limits that are enforced by banks and NPCI vary among Rs 1-5 lakh, depending on the category.
Is there any proposal to promote UPI among small merchants?
A dedicated fund for promoting the use of UPI by small merchants will be set up with a contribution of 5% of total MDR collections.
Does the government estimate any impact on merchant transactions because of MDR?
The government estimates that 0nly 4 percentage of merchant transactions will be impacted by the introduction of MDR.
What about autopay instructions or UPI mandate?
Automated recurring standing instructions, known as UPI Mandates or AutoPay, do not carry prescribed MDR transaction charges. Payments set up using automated recurring transfers for monthly utility bills, OTT streaming subscriptions, all recurring investments etc. will not pay any prescribed MDR charge for the transaction.
When will the MDR regime take effect?
The finalised MDR framework and threshold structure take effect from October 15, 2026.
What about UPI payments via RuPay credit card?
Credit-linked UPI payments, such as RuPay credit cards linked to UPI or pre-sanctioned bank credit lines, operate under separate credit product rules.
Because credit-linked transactions involve short-term loans funded by issuing banks, they follow standard credit card guidelines.
The MDR rules apply specifically to direct users-account-to-merchant-account UPI transactions, and not to credit card linked UPI ones.
