Context
The National Payments Corporation of India (NPCI) has introduced a Merchant Discount Rate (MDR) of 0.4% on specified Person-to-Merchant (P2M) UPI transactions above ₹2,000, effective from October 15, 2026. Person-to-Person (P2P) transfers, low-value merchant payments and eligible small merchants remain exempt.
Explanation
- Unified Payments Interface (UPI) is an instant, interoperable digital payment system operated by NPCI, allowing transfers between bank accounts through participating applications.
- Merchant Discount Rate (MDR) is the fee associated with processing a merchant’s digital payment. It is not a tax and is shared among payment ecosystem participants such as banks and payment service providers.
- Under the new framework, P2P transactions remain completely free, irrespective of transaction value, while P2M payments up to ₹2,000 also remain free.
- Eligible small merchants receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category continue to have zero MDR.
- Other P2M transactions above ₹2,000 attract 0.4% MDR; for transactions of ₹75,000 and above, MDR is capped at ₹300.
- Essential sectors such as railways, telecommunications, insurance, fuel and agricultural inputs attract a flat ₹5 MDR for applicable transactions above ₹2,000.
- Customers are not required to pay MDR, and banks have been advised to ensure that merchants do not pass this charge on to customers.
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