💳 UPI MDR Rules Revised – What Merchants Need to Know
Unified Payments Interface (UPI) has become one of the most widely used digital payment systems in India. From neighbourhood shops and restaurants to large businesses and service providers, merchants increasingly depend on UPI to receive payments quickly and conveniently.
A significant change is now coming to the way certain UPI merchant transactions are handled.
The National Payments Corporation of India (NPCI) has introduced a revised Merchant Discount Rate (MDR) framework for select Person-to-Merchant (P2M) UPI transactions. The framework is scheduled to become effective from 15 October 2026.
Under the new framework, specified P2M transactions above ₹2,000 will attract an MDR of 0.4%, subject to applicable categories, exemptions and caps. For transactions of ₹75,000 and above, the MDR is capped at ₹300 per transaction.
At the same time, UPI remains free for Person-to-Person (P2P) transactions, and merchant payments up to ₹2,000 remain free under the applicable framework.
This makes it important for merchants to understand exactly what is changing and what remains free.
What Is MDR?
MDR stands for Merchant Discount Rate.
It is a charge associated with processing a digital payment. It forms part of the payment ecosystem and is distributed among relevant participants such as banks, payment service providers and UPI application providers.
MDR should not be confused with a tax.
The Government has specifically clarified that MDR is neither a tax nor a charge collected by the Government or NPCI. It is a payment ecosystem charge intended to support the operation and expansion of UPI.
For merchants, however, MDR represents a payment-processing cost that needs to be considered when maintaining financial and accounting records.
P2P UPI Transactions Remain Free
One of the most important points in the revised framework is that Person-to-Person transactions remain completely free.
For example, if one individual transfers money to another individual through UPI, there is no MDR merely because the amount is high.
This includes eligible personal transfers such as:
- Money transferred between family members
- Payments between friends
- Personal reimbursements
- Other Person-to-Person UPI transfers
The Government has clarified that P2P transactions remain outside the MDR framework irrespective of the amount transferred.
Therefore, the revised MDR framework should not be interpreted as a general charge on every UPI transaction.
Merchant Payments Up to ₹2,000 Remain Free
For Person-to-Merchant transactions, payments up to ₹2,000 will remain free of MDR under the applicable framework.
This is particularly relevant for everyday transactions such as:
- Grocery purchases
- Small retail purchases
- Restaurant bills
- Local services
- Small business payments
- Neighbourhood shopping
The Government has stated that approximately 96% of P2M transactions will remain unaffected, taking into account the ₹2,000 threshold and zero-MDR provisions applicable to eligible small merchants.
Therefore, most ordinary low-value UPI transactions will continue without the new standard MDR.
What Happens Above ₹2,000?
The revised framework introduces a 0.4% MDR for specified P2M transactions above ₹2,000.
The charge applies to the eligible merchant transaction according to the applicable framework; it is not simply a charge calculated only on the amount exceeding ₹2,000.
For example, under the standard 0.4% category:
| UPI Merchant Payment | 0.4% MDR |
|---|---|
| ₹3,000 | ₹12 |
| ₹5,000 | ₹20 |
| ₹10,000 | ₹40 |
| ₹25,000 | ₹100 |
| ₹50,000 | ₹200 |
| ₹75,000 | ₹300 |
For transactions reaching ₹75,000, the ₹300 cap becomes relevant.
₹300 Cap for Transactions of ₹75,000 and Above
The revised framework provides a maximum MDR of ₹300 per transaction for specified transactions of ₹75,000 and above.
For example:
- ₹75,000 → ₹300
- ₹1,00,000 → maximum ₹300
- ₹2,00,000 → maximum ₹300
- ₹5,00,000 → maximum ₹300
This cap is important for merchants accepting high-value UPI payments because the MDR does not continue increasing indefinitely with the transaction value.
The Government has specifically stated that the 0.4% MDR is capped at ₹300 for transactions of ₹75,000 and above.
Customers Will Not Bear the MDR
Another important clarification is that customers are not required to pay the MDR.
The Government has stated that consumers will not face transaction charges for making UPI payments.
The MDR is a merchant-side payment ecosystem charge.
Therefore, merchants should not simply add a separate “UPI charge” to a customer's bill merely because the customer chooses UPI as the payment method.
Businesses should review their billing practices and ensure that customer-facing charges are consistent with the applicable framework.
Small Merchants May Continue Under Zero MDR
The revised framework also provides protection for eligible small merchants.
The Government has stated that small merchants, including street vendors and neighbourhood businesses receiving up to ₹1 lakh per month through UPI QR codes under the applicable P2PM category, can continue under the zero-MDR framework.
This is particularly relevant for micro and small businesses that rely heavily on UPI for daily collections.
However, businesses should verify their actual merchant classification and eligibility rather than assuming that every small business automatically qualifies.
Special Categories Have Different Rates
The standard 0.4% rate is not the only rate in the framework.
Certain essential and thin-margin sectors have been given a separate treatment.
For eligible transactions above ₹2,000, sectors such as:
- Railways
- Telecommunications
- Insurance
- Fuel
- Agricultural inputs
will attract a flat MDR of ₹5 per transaction, according to the Government's framework.
There is also a separate rate for specified capital-market transactions.
Payments relating to categories such as mutual funds, securities, stockbrokers and dealers attract an MDR of 0.02%, subject to a ₹300 cap per transaction.
Consequently, merchants should identify their applicable category before calculating the expected payment-processing cost.
What Does This Mean for Businesses?
The change is particularly relevant to businesses that regularly receive UPI payments above ₹2,000.
Merchants should review:
1. Payment Service Provider Agreements
Businesses should check their agreements with banks, payment aggregators and other payment service providers.
2. Merchant Classification
Confirm whether the business falls under the standard P2M category, a small-merchant category or another specified category.
3. Settlement Statements
Once the framework becomes operational, merchants should examine settlement reports carefully to identify MDR deductions.
4. Accounting Records
MDR and other payment-processing charges should be properly recorded in the business accounts with appropriate supporting documentation.
5. Reconciliation
Businesses should reconcile:
- Gross UPI collections
- MDR deductions
- Other payment-processing charges
- Refunds
- Net bank settlements
Regular reconciliation can help identify discrepancies quickly.
Example: How MDR Could Affect a Business
Suppose a retailer receives the following eligible UPI payments in a day:
- 10 payments of ₹1,500
- 5 payments of ₹5,000
- 2 payments of ₹20,000
The ₹1,500 transactions fall within the ₹2,000 threshold and therefore do not attract the standard MDR.
The five ₹5,000 transactions would have an MDR of ₹20 each, resulting in ₹100.
The two ₹20,000 transactions would have an MDR of ₹80 each, resulting in ₹160.
The total standard MDR in this simplified example would therefore be ₹260.
This illustrates why businesses should look at their transaction mix rather than applying a blanket percentage to their entire UPI turnover.
Actual charges will depend on the applicable merchant category and framework.
UPI MDR Is Not a New UPI Spending Limit
Merchants and customers should also understand that ₹2,000 is not a maximum UPI payment limit under this framework.
A customer can make a higher-value eligible UPI merchant payment.
The ₹2,000 figure determines whether the standard MDR framework applies to the relevant P2M transaction; it does not mean that UPI payments above ₹2,000 are prohibited.
Similarly, the ₹75,000 figure relates to the MDR cap and should not be confused with a maximum UPI transaction limit.
Preparing for the October 2026 Change
The revised framework is scheduled to take effect from 15 October 2026.
Merchants should use the period before implementation to:
✅ Confirm their merchant category.
✅ Speak with their acquiring bank or payment service provider.
✅ Understand how MDR will appear in settlement statements.
✅ Review accounting treatment for payment-processing charges.
✅ Update reconciliation procedures.
✅ Train finance and accounts teams.
✅ Review customer billing practices.
Businesses with substantial UPI collections should particularly monitor the effect of the new framework on their payment-processing costs.
Key Takeaways
The important points for merchants are:
🔹 P2P UPI transactions remain free.
🔹 Merchant payments up to ₹2,000 remain free of MDR.
🔹 Specified P2M transactions above ₹2,000 attract 0.4% MDR.
🔹 MDR is capped at ₹300 for transactions of ₹75,000 and above.
🔹 Customers are not required to bear the MDR.
🔹 Eligible small merchants can continue under zero-MDR provisions.
🔹 Certain essential sectors have a separate ₹5 flat MDR structure.
🔹 Specified capital-market transactions have a separate 0.02% rate, subject to a ₹300 cap.
🔹 The revised framework is scheduled to become effective from 15 October 2026.
🔹 Businesses should review their merchant category, settlement reports and accounting systems.
Conclusion
The revised UPI MDR framework represents an important development for India's digital-payment ecosystem.
For consumers, the everyday UPI experience remains largely unchanged because P2P payments continue to be free and merchant payments up to ₹2,000 remain free under the applicable framework.
For merchants, however, the introduction of MDR on specified higher-value P2M transactions means that payment-processing costs will need to be monitored more carefully.
Businesses should not treat the 0.4% rate as a blanket charge on all UPI collections. Merchant category, transaction value, exemptions, sector-specific rates and applicable caps all matter.
As the 15 October 2026 implementation date approaches, merchants should review their payment arrangements, accounting systems and settlement processes.
Understanding the rules in advance can help businesses maintain accurate financial records and plan their payment-related costs effectively.
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