The Centre will impose Merchant Discount Rate (MDR) charges on select UPI transactions from mid-October 2026, as announced by the National Payments Council of India (NPCI) on September 15, 2026. The MDR will apply on person-to-merchant (P2M) UPI payments above ₹2,000, with no impact on small-value UPI transactions up to ₹2,000 for all merchants, which account for more than 95% of all UPI P2M transactions. According to the Ministry of Finance, UPI transactions accounting for 70% of total transaction value will remain completely outside the MDR framework, with the rules keeping 95% of low-value UPI transactions below ₹2,000 and small merchant transactions completely free. The framework has been introduced under the Payment and Settlement Systems Act, 2007, following detailed deliberations by the UPI Steering Committee on applicable rates and consumer safeguards. As per Mint, the Department of Financial Services has set October 15, 2026 as the implementation date to give banks, payment aggregators, fintech applications and businesses adequate time to make necessary system changes.
The revised UPI MDR framework introduces multiple slabs based on transaction value and merchant categories. For transactions above ₹2,000, a flat MDR of ₹5 per transaction applies to specified merchant categories such as railways, telecom services, insurance, fuel and agricultural inputs. MDR of 0.4% is applicable on P2M UPI transactions above ₹2,000, while payments relating to mutual funds, securities, stockbrokers and dealers attract an MDR of 0.02%, capped at ₹300 per transaction. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction. Small merchants, including street vendors receiving up to ₹1 lakh per month through UPI QR codes, will continue to enjoy zero MDR on all transactions, protecting street vendors, neighbourhood shops and other small businesses from additional payment costs. Automated recurring payments enabled through e-mandate will remain outside the MDR framework. As per Mint, the ₹2,000 threshold does not mean every merchant payment above that amount will automatically attract 0.4% MDR - the applicable treatment depends on the transaction category and merchant's classification under the framework.
According to NPCI FAQs released on September 15, 2026, UPI MDR is structured to be much lower than all traditional card-based transaction fees. Standard credit card MDRs typically range from 1.5% to 2.5% per transaction, while debit card MDRs are capped up to 0.90%. For a ₹10,000 payment, the merchant would pay ₹40 as UPI MDR, compared to ₹90 for debit cards at 0.90% MDR and ₹150-250 for credit cards at 1.5%-2.5% MDR respectively. On higher transaction values, UPI MDR remains capped at ₹300 even for transactions above ₹75,000, while debit card MDR would cost ₹675 on ₹75,000 and credit card MDRs would reach ₹1,125-1,875 for the same amount. NPCI noted that UPI remains the most affordable digital payment acceptance tool for commercial enterprises. For Indian consumers, the key point is that UPI remains free for individuals from October 15, with the new MDR being a merchant-side charge that will apply only to specified P2M transactions above ₹2,000, leaving most everyday UPI payments outside the new fee framework.
Ahmedabad-based industrial marketplace Pneucons has decided to stop accepting UPI payments from October 10, with co-founder Pritesh Lakhani citing the significant impact of MDR charges on business margins. According to Lakhani's social media post, Pneucons earns a 0.5% commission on order value before tax, meaning ₹50 commission on a ₹10,000 order. However, with the new MDR of 0.4% on the GST-inclusive amount of ₹11,800 (including ₹1,800 GST), the UPI charge works out to ₹47.20, leaving only ₹2.80 from the original ₹50 commission. The company's co-founder noted that MDR charges eat up 94% of Pneucons' margin on every UPI order above ₹2,000. The impact is compounded by GST of 18% on the ₹47.20 MDR, adding another ₹8.50 to the payment cost, which Lakhani described as working capital stuck on every order.
India's UPI MDR framework differs significantly from digital payment fee structures in other countries. In Indonesia, Bank Indonesia's QRIS framework currently gives micro merchants 0% MDR on transactions up to ₹1 lakh (500,000 rupiah), with the 0% threshold extended to transactions up to ₹2 lakh (100,000 rupiah) for small, medium and large merchants from October 1, 2026. Malaysia's DuitNow QR also has merchant transaction fees, though Bank Negara Malaysia says major banks and selected non-bank providers continue to waive these fees for micro and small businesses. The comparison shows that merchant-side fees are not unusual in digital-payment systems, but countries differ in how they set thresholds, merchant exemptions and rates. As per Mint, the MDR is not a tax or charge collected by the government or NPCI, but will be distributed among payment ecosystem participants to support infrastructure resiliency, innovation, cybersecurity and customer service.
