The National Payments Corporation of India (NPCI) on Tuesday announced a merchant discount rate (MDR) for UPI transactions. A 0.4% charge will apply to person-to-merchant (P2M) UPI payments above Rs 2,000.
The new MDR framework and transaction thresholds will come into effect from October 15. For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction, NPCI said. Payments of up to Rs 2,000 will remain exempt. These account for more than 95% of UPI person-to-merchant transaction volumes, according to an FAQ released by NPCI.
MDR is the fee merchants pay for accepting digital payments. Under the standard rate, a Rs 3,000 purchase will attract Rs 12, while a Rs 50,000 transaction will cost Rs 200. A Rs 1 lakh payment will attract the capped Rs 300 charge.
Funding UPI’s growing network
NPCI said the revenue would remain within the UPI ecosystem to support infrastructure resilience, innovation, cybersecurity and customer service. The FAQ cited industry estimates placing annual spending on UPI operations, server bandwidth, fraud prevention and bank technical support at around Rs 20,000 crore.
Government incentives had helped accelerate adoption but were intended as bridge funding, the document said. Depending solely on budgetary allocations creates uncertainty and constrains sustained technology investment, it added.
The funding push comes as UPI continues to expand. According to the FAQ, the network processed 2,451 crore transactions worth Rs 29.9 lakh crore in August 2026.
Consumers, micro merchants remain exempt
Consumers will continue making UPI payments without transaction charges, regardless of purchase amount. Person-to-person transfers, including payments to family members and transfers between an individual’s accounts, will also remain free. UPI applications are prohibited from imposing platform fees or other charges on payments.
Micro merchants classified under the person-to-person-merchant framework will retain zero MDR. This category covers small vendors receiving up to Rs 1 lakh monthly through UPI QR codes directly into their accounts. An individual payment exceeding Rs 2,000 will not remove that exemption.
Banks and payment providers will monitor collections. Merchants receiving more than Rs 1 lakh a month for three consecutive months will move into the P2M category. GST registration is not required to qualify for the P2PM exemption and existing QR codes and soundboxes need no replacement.
Special rates and support for small merchants
Several sectors will receive concessional pricing like railways, telecom, insurance and fuel payments above Rs 2,000 will attract a flat Rs 5 charge. Designated public utilities, including electricity, municipal water and piped natural gas, will also qualify for that rate.
Capital market transactions, including mutual funds, securities and stockbroker payments, will carry an MDR of 0.02%, capped at Rs 300. Automated recurring payments through UPI mandates or AutoPay will not attract the prescribed MDR.
The framework applies specifically to direct bank-account-to-merchant-account payments. Credit-linked UPI transactions, including RuPay credit cards and sanctioned credit lines, remain governed by separate credit product rules.