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Scan for outdated or missing drivers - takes under a minuteDriver Scan →Clear out junk files and repair common Windows errorsFree Scan →The announced UPI merchant discount rate (MDR) framework is scheduled to take effect on 15 October 2026. It sets a standard MDR of 0.4% on specified person-to-merchant (P2M) payments above ₹2,000, with different rates for certain sectors and capital-market payments. Under the announced policy, customers should not be charged MDR, and person-to-person (P2P) transfers remain free.
When do the updated UPI MDR provisions take effect?
The Ministry of Finance’s FAQ, dated 15 September 2026, says the finalized framework takes effect on 15 October 2026. That date is in the future as of 3 October 2026, so the rates below are announced provisions, not charges already in operation. Ministry of Finance, Department of Financial Services FAQ
What are the announced UPI MDR rates?
The rate depends on the transaction category, amount and, for some merchant transactions, the merchant’s qualifying status. The standard 0.4% rate is not a universal fee on every UPI payment.
| Transaction category | Announced MDR | When it applies |
|---|---|---|
| Specified standard P2M merchant transactions | 0.4% | Payments above ₹2,000; capped at ₹300 per transaction for payments of ₹75,000 and above |
| Specified essential and thin-margin sectors | Flat ₹5 | Payments above ₹2,000 in listed sectors, including railways, telecommunications, insurance, fuel and agricultural inputs |
| Capital-market payments | 0.02% | Capped at ₹300; the release includes mutual funds, securities, stockbrokers and dealers |
| P2P transfers | Zero | Any amount, according to the Ministry of Finance release |
| P2M payments of ₹2,000 or less | Zero MDR | The release says customers pay no charge for these transactions |
| Qualifying small merchants in P2M | Zero MDR | The release describes small merchants receiving up to ₹1 lakh per month through UPI QR codes |
For the standard tier, the Ministry FAQ gives these examples: a ₹3,000 payment produces ₹12 MDR, and a ₹50,000 payment produces ₹200. At ₹75,000 and above, the standard per-transaction MDR is capped at ₹300. Those examples should not be applied to the flat-₹5 or capital-market categories. Ministry of Finance FAQ, 15 September 2026
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Who pays the MDR—and can a merchant pass it on?
MDR is a merchant-side payment-processing charge under the announced framework, not a tax collected by the government or NPCI. The Ministry of Finance says the amount is distributed among payment-ecosystem participants. Banks have been advised to ensure merchants do not pass MDR on to customers, and UPI application providers are prohibited from imposing platform or hidden fees. These are announced safeguards; they do not establish that every merchant will comply in practice. Ministry of Finance via PIB, 15 September 2026
In practical terms, customers should not see an MDR line added to a UPI payment under the announced policy. If a merchant attempts to add one, the stated rule is that the merchant should not pass that charge to the buyer.
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Which payments are expected to remain unaffected?
The Ministry of Finance says approximately 96% of P2M transactions will remain unaffected, citing payments of ₹2,000 or less and transactions covered by the zero-MDR framework for small merchants. Separately, the FAQ says payments at or below ₹2,000 account for more than 95% of total P2M transaction volume. These are different figures: the first is the Ministry’s estimate of the share unaffected, while the second refers specifically to the share at or below the threshold. Ministry of Finance via PIB, 15 September 2026 Ministry of Finance FAQ, 15 September 2026
The small-merchant exemption has its own qualification: the release describes qualifying P2M small merchants receiving up to ₹1 lakh per month through UPI QR codes. It should not be read as a rule that every merchant’s status is determined solely by the amount of an individual payment. Ministry of Finance via PIB, 15 September 2026
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Why is the Merchant Discount Rate being introduced now?
The Ministry’s stated case is that UPI needs a more reliable funding model as the system grows. Its FAQ says UPI processes billions of transactions monthly and that MDR revenue will be distributed within the payment ecosystem to support infrastructure resilience, innovation, cybersecurity and customer service. It also says government incentives and subsidies were intended as short-term bridge funding rather than permanent compensation for industry costs. This is the government’s rationale for the policy, not proof that MDR is the only viable funding choice. Ministry of Finance FAQ, 15 September 2026
The FAQ cites an industry estimate of approximately ₹20,000 crore in annual UPI operating costs; this is an attributed industry estimate, not an independently audited government expenditure figure. Ministry of Finance FAQ, 15 September 2026
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An earlier Ministry release reported that UPI processed 2,366 crore transactions worth ₹29.9 lakh crore in July 2026. That figure indicates the scale of activity reported by the Ministry, but by itself does not establish that the new fee is necessary. Ministry of Finance via PIB, 8 August 2026
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What should UPI users and merchants watch for?
- Customers: The announced policy says customers should not be charged MDR or UPI platform fees; P2P transfers remain free.
- Merchants: Check which announced category applies rather than assuming every payment above ₹2,000 carries the standard 0.4% rate.
- Businesses: The standard rate’s ₹300 cap applies to transactions of ₹75,000 and above; special-sector and capital-market rates have separate terms.
- Small merchants: The zero-MDR description is tied to the stated small-merchant qualification and UPI QR receipts, not simply to a low-value individual sale.
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