UPI Transactions Above ₹2,000 May Draw 0.4% MDR, With ₹300 Maximum Cap

UPI transactions between individuals will remain completely free, but merchant payments above ₹2,000 will attract a Merchant Discount Rate (MDR) of 0.4%, the government announced on Tuesday.

The Ministry of Finance said the MDR on eligible high-value merchant transactions will be capped at ₹300 per transaction for payments of ₹75,000 or more, with the new framework coming into effect from October 15, 2026.

The government stressed that the charges will apply only to merchant transactions. Person-to-person (P2P) UPI payments will continue to remain free regardless of the amount transferred.

According to the ministry, P2P transactions currently account for around 37% of UPI transactions by volume and nearly 70% by value.

Banks have also been instructed to ensure that merchants do not recover the MDR from customers by adding the charge to UPI payments.

MDR To Be Shared Across Payment Ecosystem

The 0.4% MDR collected on eligible merchant transactions will be distributed among participants in the UPI ecosystem, including banks and UPI application providers.

The Finance Ministry said its analysis suggests that only about 4% of merchant transactions will be affected by the new MDR. Most transactions either fall below the ₹2,000 threshold or qualify for zero MDR under the P2PM framework.

This, the government said, will help protect micro and small businesses from additional payment costs.

Essential Services To Have Flat ₹5 Charge

Payments above ₹2,000 in certain essential sectors will attract a fixed MDR of ₹5 per transaction instead of the standard 0.4% rate.

The categories include railways, telecom, insurance, fuel and agriculture inputs, among others. The government said the flat-rate mechanism is designed to offer greater cost certainty to essential services and sectors that typically operate on narrow margins.

These categories together account for around 17% of UPI person-to-merchant transaction volumes and approximately 46% of merchant transaction value.

Lower MDR For Capital Market Payments

A separate, significantly lower MDR of 0.02% will apply to transactions involving mutual funds, securities, stockbrokers and dealers. The charge will also be capped at ₹300 per transaction.

Meanwhile, small vendors covered under the Person-to-Person-Merchant (P2PM) framework will continue to benefit from zero MDR.

Small merchants receiving up to ₹1 lakh per month through UPI QR codes will remain exempt from MDR. The government said the measure is intended to support informal and small businesses as they adopt formal digital payment systems.

New Fund To Promote UPI Among Small Merchants

The government will also establish a dedicated fund to encourage greater UPI adoption among small merchants. Five per cent of the total MDR collected will be contributed to the fund.

The ministry said the initiative will be used to expand UPI acceptance, promote regular usage and accelerate the integration of small and informal businesses into India’s digital payments ecosystem.