The National Payments Corporation of India (NPCI) is introducing a new Merchant Discount Rate (MDR) structure for select UPI payments starting October 15, 2026. Under the updated rule, merchant transactions above ₹2,000 will attract a 0.4% MDR, with the charge capped at ₹300 for payments of ₹75,000 or more.
What Is MDR?
MDR is the fee charged for processing a digital payment. In this case, the charge is paid by the merchant, not the customer. The new rate applies to Person-to-Merchant (P2M) UPI payments — transactions where customers pay businesses for goods or services.
Where the 0.4% MDR Applies
Payments above ₹2,000 made via UPI to merchants will carry a 0.4% MDR. However, certain essential payments have been given a flat fee instead:
- Railway ticket bookings above ₹2,000
- Fuel payments above ₹2,000
- Insurance premium payments above ₹2,000
- Utility bill payments above ₹2,000
For these categories, the MDR will be a flat ₹5, rather than a percentage of the transaction value. This keeps costs predictable for high-value payments in these sectors.
What Remains Free
Not all UPI transactions will be affected by the new rule. The following remain free of MDR:
- UPI payments of up to ₹2,000 to any merchant
- Person-to-Person (P2P) transfers to friends and family
- UPI AutoPay and mandates
- Small merchants receiving up to ₹1 lakh per month through UPI QR payments
Protection for Consumers
The finance ministry has said that banks have been advised to ensure merchants do not pass MDR charges on to customers. It also stated that UPI application providers are expressly prohibited from imposing platform fees or hidden charges.
The new MDR structure is part of UPI’s move toward a revised charging model that balances business use cases with keeping everyday person-to-person transfers free.
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