UPI MDR Charges 2026: Who Will Pay How Much?

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UPI MDR Charges 2026: Why in News?

The Government has announced a new Merchant Discount Rate (MDR) framework for Unified Payments Interface (UPI) transactions. The new framework will come into effect from 15 October 2026.

Under the new system, person-to-person (P2P) UPI transactions will remain free, while certain higher-value payments made to merchants will attract MDR.

What is MDR?

Merchant Discount Rate (MDR) is a fee associated with processing a digital payment received by a merchant. It is charged within the merchant payment ecosystem and is not intended to be a direct charge on customers.

For UPI, the new framework introduces different MDR rates depending on the type and value of the transaction.

New UPI MDR Charges 2026

Transaction Type	MDR
Person-to-person (P2P) payments	0%
Merchant payments up to ₹2,000	0%
Merchant payments above ₹2,000	0.4%
Merchant payments above ₹75,000	0.4%, capped at ₹300
Essential services	₹5 per transaction
Mutual funds, securities, stockbrokers and dealers	0.02%, capped at ₹300
UPI AutoPay/recurring mandates	0%
Eligible small merchants up to ₹1 lakh monthly UPI inflow	0%

Will Customers Have to Pay UPI Charges?

According to the government, customers will not directly pay the MDR.

Banks have been advised to ensure that merchants do not pass the MDR cost on to customers. UPI application providers have also been prohibited from imposing platform fees or hidden charges.

Therefore, ordinary consumers can continue using UPI without a direct transaction fee under the new framework.

Which UPI Transactions Will Attract 0.4% MDR?

The 0.4% MDR will apply primarily to person-to-merchant (P2M) transactions above ₹2,000.

For high-value merchant transactions exceeding ₹75,000, the MDR will remain 0.4% but will be capped at ₹300 per transaction.

For example, a ₹10,000 eligible merchant payment would attract MDR of ₹40 within the merchant ecosystem.

Exemptions Under the New UPI MDR Framework

Several categories will not be subject to the standard 0.4% rate.

Essential Services

Payments involving certain essential services will attract a flat ₹5 MDR per transaction, rather than 0.4%.

These include:

Railways
Telecommunications
Insurance
Fuel
Electricity and other utility bills
Piped gas
Education
Agricultural inputs

Capital Market Transactions

Transactions involving:

Mutual funds
Securities
Stockbrokers
Dealers

will attract an MDR of 0.02%, subject to a ₹300 per-transaction cap.

UPI AutoPay and Recurring Payments

Recurring transactions made through UPI Mandates/AutoPay, such as recurring investments, OTT subscriptions and monthly utility payments, will not attract MDR.

Special Protection for Small Merchants

The framework provides a zero-MDR category for eligible small merchants.

Small vendors, including street vendors, receiving up to ₹1 lakh per month through UPI QR codes into their personal bank accounts will remain exempt from MDR.

These merchants fall under the Person-to-Person-Merchant (P2PM) category.

They do not need to replace or re-register their existing QR codes because of the new framework.

What Happens If a Small Merchant Crosses ₹1 Lakh?

Banks and payment service providers will monitor transaction patterns and inward UPI payments.

If a merchant’s aggregate UPI inflows exceed ₹1 lakh per month for three consecutive months, the merchant can be moved from the P2PM category to the regular Person-to-Merchant (P2M) category.

The applicable MDR rules would then apply.

Why Has UPI MDR Been Introduced?

The National Payments Corporation of India (NPCI) has argued that the introduction of a limited MDR can support further investment in:

UPI infrastructure
Cybersecurity
System resilience
Innovation
Customer service

UPI handles billions of transactions, creating significant requirements for maintaining and expanding payment infrastructure.

How Much of UPI Will Be Affected?

The government has stated that the new MDR framework will have a limited impact on merchant transactions.

According to government estimates, around 4% of merchant transactions will be affected, while approximately 96% will remain unaffected because they are either below the ₹2,000 threshold or covered by zero-MDR provisions for small merchants.