The National Payments Corporation of India (NPCI) will introduce a 0.4% merchant discount rate (MDR) on select Person-to-Merchant (P2M) UPI transactions above ₹2,000 from October 15, 2026, under a new framework aimed at supporting the sustainability and resilience of the digital payments ecosystem.
The MDR will be borne by merchants and will not be charged to consumers. UPI payments will remain free for consumers, while Person-to-Person (P2P) transactions will continue to carry no MDR regardless of the transaction amount, according to NPCI’s new framework.
For eligible P2M transactions above ₹2,000, the MDR will be 0.4%. For transactions of ₹75,000 and above, the charge will be capped at ₹300 per transaction. A ₹3,000 payment would therefore attract an MDR of ₹12, while a ₹50,000 payment would attract ₹200. Transactions up to ₹2,000 will not attract MDR.
The framework excludes small merchants covered under the Person-to-Person-to-Merchant (P2PM) category. Merchants receiving up to ₹1 lakh a month through UPI QR payments under this category will remain exempt from MDR. P2PM QR payments in rural and semi-urban areas will also remain free.
Certain sectors will follow separate fee structures. Eligible UPI transactions above ₹2,000 in categories including railways, telecom services, insurance and fuel will attract a flat MDR of ₹5 per transaction. Capital-market transactions will carry an MDR of 0.02%, capped at ₹300.
Merchants will not be permitted to pass the MDR on to customers. UPI apps will also not be allowed to levy platform fees or other charges for UPI payments, according to the framework.
The government had previously indicated that any MDR would be borne by merchants rather than end users. Finance Minister Nirmala Sitharaman had said the proposed mechanism would help support continued investment in payment infrastructure, innovation and security, while the final framework was to be decided through the UPI ecosystem’s designated governance process.
NPCI said the finalized framework is intended to support investment in payment infrastructure, cybersecurity, fraud prevention, innovation and customer service. Its FAQ cited industry estimates putting the annual cost of UPI operations, including servers, fraud management and bank technical support, at around ₹20,000 crore.
The change comes as UPI continues to operate at a large scale. NPCI said the platform processed 2,451 crore transactions worth ₹29.9 lakh crore in August 2026.
Pine Labs CEO Amrish Rau was quoted by news agency Reuters as saying that continued investment in technology, cybersecurity, fraud prevention and payment reliability would be necessary to support UPI’s expansion.
The MDR collected under the new framework will be distributed among participants in the UPI ecosystem. The UPI and Services Steering Committee, headed by NPCI, will determine operational parameters, fee-distribution models and category-specific caps.
NPCI also said a dedicated fund would be created to support digital infrastructure and onboarding among small merchants. The detailed framework for the fund is to be finalised in consultation with the Reserve Bank of India within three months.
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