• Source:JND
HighLights
  1. 0.4% MDR on UPI P2M transactions exceeding Rs 2,000.
  2. MDR capped at Rs 300 for transactions above Rs 75,000.
  3. Consumers and small merchants remain exempt from UPI charges.

A major update for digital payment users as the Centre has announced a 0.4 per cent Merchant Discount Rate (MDR) on UPI payments above Rs 2,000 made to merchants. The MDR will be capped at Rs 300 for transactions of Rs 75,000 and above.

This marks the end of the zero-MDR regime that has been in place since January 2020. The policy was introduced to encourage the adoption of digital payments but has long been criticised by banks and fintech companies as financially unsustainable.

Under the new framework, an MDR of 0.4per cent will apply to Person-to-Merchant (P2M) UPI transactions above Rs 2,000. For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction.

Small merchants earning up to Rs 1 lakh a month through UPI QR codes will remain fully exempt from MDR.

Here are some FAQs:

Q1. Why is MDR being introduced now?

UPI processes billions of transactions every month. The MDR collected will remain within the UPI ecosystem and help support investments in infrastructure, reliability, innovation, cybersecurity and customer service.

UPI charges are expected to remain much lower than those associated with other payment methods, such as credit cards, debit cards and wallets. The 0.4per cent MDR will apply only to transactions above Rs 2,000, helping ensure that UPI remains an affordable payment option for merchants.

Q2. Will small-value UPI transactions be affected?

No. UPI transactions of up to Rs 2,000 will not be affected.

These transactions account for more than 95per cent of the total volume of UPI Person-to-Merchant (P2M) transactions. The aim of the new MDR is to support the long-term sustainability of the UPI ecosystem while keeping everyday digital payments convenient and affordable.

Q3. Will customers be charged for making UPI payments?

No. Customers will continue to make UPI payments free of charge. MDR is a fee paid by the merchant and is not directly charged to the customer.

Q4. What MDR will merchants pay on UPI transactions?

An MDR of 0.4per cent will apply to Person-to-Merchant (P2M) UPI transactions above Rs 2,000. For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction.

Q5. When will the new MDR rules come into effect?

The finalised MDR framework and transaction thresholds will take effect from October 15, 2026. This timeline will give acquiring banks, payment aggregators, fintech companies and accounting platforms enough time to update their software, billing systems and other processes.

Q6. Will ordinary consumers have to pay for using UPI?

No. UPI will continue to be free for consumers. Consumers can continue using UPI for their regular daily expenses without worrying about additional charges. The new MDR applies to merchants, not to customers making payments through UPI.

Q7. Will there be any charge for Person-to-Person (P2P) UPI transactions?

No. P2P UPI transactions will remain free. Sending or receiving money between individuals including transfers between a person's own accounts and will not attract MDR.

Q8. Will UPI apps start charging a platform fee on UPI payments?

No. UPI app providers will not charge a platform fee or any other fee for making UPI payments. The introduction of MDR does not mean that customers will have to pay a separate fee to use a UPI app.

Q9. Will prices at stores increase because merchants have to pay MDR?

Not necessarily. The MDR is a payment-processing cost for merchants. Businesses may choose to absorb this cost as part of their normal operating expenses. The actual impact on prices, however, will depend on individual merchants and market conditions.

Q10. Will I have to pay a fee when scanning a QR code at a local shop?

No. Customers will not be charged a fee for scanning a UPI QR code and making a payment. Whether you are paying at a local market, street vendor or retail shop, there will be no customer-side UPI fee under the new MDR framework.

Q11. Are there any monthly limits on free UPI transactions for consumers?

No. There will be no monthly fee quota or spending threshold for individual consumers simply because they use UPI.

Consumers can continue to make valid Person-to-Person (P2P) and Person-to-Merchant (P2M) transactions without incurring a UPI usage fee.

ALSO READ: UPI Payment Charges: 0.4% MDR For Merchants From Oct 15, Zero Fees On Person-To-Person Transactions

Q12. Will small local vendors have to pay MDR on UPI payments?

No. Small merchants covered under the Person-to-Merchant (P2M) small-merchant framework will continue to enjoy zero MDR.

This exemption applies to small vendors receiving up to Rs 1 lakh per month through UPI QR codes directly into their bank accounts. The exemption is intended to encourage digital payments among small businesses and vendors in the unorganised retail sector.

ALSO READ: Is UPI Still Free? What Happens When You Send More Than Rs 2,000? Check New Rules And Charges

Q13. Will UPI charges be levied on petrol purchases above Rs 2,000?

A: No. Customers will continue to make UPI payments free of charge, including payments for petrol. The applicable MDR is a merchant-side charge and is not directly levied on the customer.

Q14. How is MDR calculated for different transaction amounts?

The MDR is calculated at 0.4per cent of the transaction value for eligible transactions above Rs 2,000, subject to the Rs 300 maximum cap.

Rs 1,00,000 transaction: 0.4per cent would normally equal Rs 400, but because the MDR is capped at Rs 300 for transactions of Rs 75,000 and above, the merchant pays Rs 300 MDR.

In short, transactions up to Rs 2,000 will have zero MDR, eligible transactions above Rs 2,000 will attract 0.4per cent , and the MDR will not exceed Rs 300 per transaction.

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