NPCI Announces 0.4% MDR on UPI Transactions Above INR 2,000

The National Payments Corporation of India (NPCI) has introduced a Merchant Discount Rate (MDR) of 0.4% on Person-to-Merchant UPI transactions above INR 2,000, effective October 15, 2026. High-value purchases of INR 75,000 and above will attract a capped MDR fee of INR 300 per transaction. UPI transactions up to INR 2,000 and all Person-to-Person transactions will remain free.

For select merchant categories, including railways, telecom, insurance and fuel, a flat MDR of INR 5 per transaction will apply on transactions above INR 2,000. Capital market transactions, including payments toward mutual funds, securities and stockbrokers, will attract a nominal 0.02% MDR, capped at INR 300. The framework was finalized by the UPI and Services Steering Committee on Tuesday.

Under the revenue-sharing structure, issuer banks that hold the customer account will receive the largest share of the 40-basis-point MDR at 40%, followed by merchant acquirers at 30%, UPI apps at 20%, and their bank partners at 10%.

Small merchants receiving up to INR 1 lakh per month through UPI QR directly into their accounts will continue to enjoy zero MDR. NPCI said small-value transactions up to INR 2,000 account for more than 95% of total UPI P2M transaction volume and will remain unaffected.

The move ends the zero-MDR regime that has applied to UPI merchant transactions since January 2020; before that, P2M transactions attracted MDR of up to 0.30%. NPCI said maintaining UPI payment operations, server bandwidth, fraud prevention and bank technical support costs approximately INR 20,000 crore annually, and that a commercial, threshold-based model would provide more reliable capital for continued technology investment than relying solely on fiscal budget allocations.

NPCI also announced a dedicated fund to subsidize and accelerate digital payment infrastructure in Tier 3-6 centres, including the Northeast, Jammu & Kashmir and Ladakh, and to support merchant onboarding and UPI adoption among existing small merchants in Tier 1 and 2 centres under central government schemes such as PM SVANidhi and PM Vishwakarma.

“The revised framework strikes a pragmatic balance between driving infrastructure growth and protecting grassroots adoption. By keeping 95 per cent of everyday transactions and small merchants completely zero-rated, NPCI ensures that micro-retailers won’t feel a ripple,” said Praveen Dhabhai, payment industry expert.