UPI Payments Above ₹2,000 To Face 0.4% MDR, Transaction Fee Capped At ₹300

UPI transfers between individuals will remain free, but merchant transactions above ₹2,000 will attract a 0.4% Merchant Discount Rate (MDR) under a new framework announced by the government on Tuesday.

The Ministry of Finance said the new MDR regime will take effect from October 15, 2026. For merchant payments of ₹75,000 and above, the MDR will be capped at ₹300 per transaction. The government clarified that the new charges will not apply to person-to-person (P2P) UPI payments, regardless of the amount. P2P transactions currently make up about 37% of UPI transactions by volume and nearly 70% by value.

Banks have been directed to ensure that merchants do not transfer the MDR burden to consumers by charging extra for UPI payments.

Who Will Pay MDR?

The 0.4% MDR will apply to eligible UPI person-to-merchant (P2M) transactions. The amount collected will be distributed among key participants in the digital payments ecosystem, including banks and UPI app providers.

The Finance Ministry estimates that only around 4% of merchant transactions will be affected. Most transactions either remain below the ₹2,000 threshold or qualify for zero MDR under the P2PM framework.

Essential Sectors Get ₹5 Flat MDR

Transactions above ₹2,000 in selected essential-service categories will attract a flat MDR of ₹5 per transaction.

The sectors include railways, telecom, insurance, fuel and agricultural inputs, among others. The government said the fixed charge will provide greater cost predictability to essential services and industries operating with limited margins.

These categories account for nearly 17% of UPI P2M transactions by volume and around 46% by value.

Capital Market Transactions Attract 0.02% MDR

A much lower MDR of 0.02% will apply to UPI payments involving mutual funds, securities, stockbrokers and dealers. The charge will be capped at ₹300 per transaction.

Small merchants covered by the P2PM framework will continue to enjoy zero MDR. Vendors receiving up to ₹1 lakh a month through UPI QR codes will remain exempt from the charge.

The government said the exemption is intended to support small and informal businesses and encourage their participation in the formal digital payments ecosystem.

5% Of MDR Collections For Small-Merchant UPI Fund

The government will create a dedicated fund to promote UPI adoption among small merchants, with 5% of total MDR collections earmarked for the initiative.

According to the Finance Ministry, the fund will support wider UPI acceptance, encourage sustained digital payment usage and help bring more small businesses into India’s formal digital economy.