UPI transactions above Rs 2,000 to attract 0.4% MDR; check key details

The government will introduce a Merchant Discount Rate (MDR) on select Person-to-Merchant (P2M) UPI transactions from October 15, with merchants paying 0.4% on transactions above Rs 2,000 and a maximum fee of Rs 300 for payments of Rs 75,000 or more, National Payments Corporation of India (NPCI) announced on Tuesday.

The new framework is aimed at creating a more sustainable commercial model for the UPI ecosystem, with the proceeds to be used for investments in payment infrastructure, cybersecurity, innovation and customer service.

Also read: Banks cannot impose charges on UPI payments of up to Rs 2,000, govt says


The move leaves the bulk of everyday UPI payments outside the new charge structure.

According to Bernstein estimates, UPI could throw up a Rs 22,000-crore annual revenue pool by FY28 if a 40-basis-point MDR is imposed on half of the transaction value, marking a significant monetisation opportunity for a payments ecosystem that has so far operated without merchant fees.

Transactions of up to Rs 2,000 will continue to carry zero MDR and account for more than 95% of UPI’s P2M transaction volume, according to the FAQ released by the authorities.

Consumers will not be charged for making UPI payments, while Person-to-Person (P2P) transfers will also remain free. Small merchants classified under the P2PM framework, including vendors receiving up to Rs 1 lakh a month through UPI QR codes, will continue to be protected from MDR.

• Rs 3,000 UPI payment would attract an MDR of Rs 12
• Rs 50,000 transaction would attract Rs 200.
• For transactions of Rs 75,000 and above, the charge will be capped at Rs 300, meaning a Rs 1 lakh payment would attract Rs 300 rather than the Rs 400 that a straight 0.4% calculation would imply.

The framework also provides concessional rates for select sectors.

• Railways, telecom, insurance and fuel, among others, will attract a flat MDR of Rs 5 for transactions above Rs 2,000 instead of the standard 0.4% rate.
• Capital-market transactions, including payments to mutual funds, stockbrokers and securities dealers, will carry an MDR of 0.02%, capped at Rs 300.

The NPCI clarified that MDR will be borne by merchants and cannot be passed on to customers. This implies that consumers will continue to pay the listed price when using UPI, with no separate transaction or platform fee imposed by UPI apps.

Also read: Merchant fee on UPI rolling out as transaction floor set at Rs 2,000

According to Bernstein, banks could receive about Rs 14,000 crore of this pool, while payment apps could earn around Rs 7,000 crore, and the network about Rs 1,000 crore.

This estimate is subject to the regulatory allocation and commercial agreements between apps and their partner banks.

Why is NPCI introducing charges on UPI transactions?

NPCI released a set of FAQs on Tuesday saying UPI processes billions of transactions every month and that operating the system at its current scale requires substantial spending on server infrastructure, bandwidth, fraud prevention, cybersecurity and technical support.

Industry estimates cited by the authority put the annual cost of maintaining UPI operations at around Rs 20,000 crore.

The new model is intended to reduce reliance on government subsidies, which NPCI described as short-term support for digital-payment adoption rather than a permanent mechanism to meet the industry's operating costs. Revenue from MDR on UPI transactions is expected to provide a more predictable funding stream for infrastructure and technology investments.

UPI processed 2,451 crore transactions worth Rs 29.9 lakh crore in August 2026 alone, underscoring the scale at which the payment infrastructure now operates.

NPCI has also proposed adedicated fund for small merchants.

The move aims to support digital-payment infrastructure in Tier 3-6 centres, including the northeastern states, Jammu & Kashmir and Ladakh, while also supporting notified government schemes in Tier 1 and 2 centres. The detailed framework for the fund is expected to be finalised in consultation with the RBI within three months.

Also read:UPI charges from October 15: FAQs on who will pay 0.4% MDR and what consumers, small vendors & large merchants need to know

Charges on UPI transactions: What will remain free?

As NPCI released the new MDR norms on Tuesday, the Ministry of Finance clarified that all person-to-person (P2P) UPI transactions, merchant payments Up to Rs 2,000 and payments received by small merchants will remain free.

All P2P UPI transactions will continue to remain completely free, irrespective of the amount transferred. The ministry said that no transaction fee, platform fee or other charge may be imposed on individuals for sending or receiving money through UPI.

Alongside this, all person-to-merchant (P2M) transactions up to Rs 2,000 will remain free of MDR, and customers will not be required to pay any charge when making such payments through UPI.

Small merchants including street vendors can receive up to Rs 1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category without can charges.