Merchant Discount Rate (MDR) On Select UPI (P2M) Transactions: Rates, Thresholds & Exemptions
Summary: The proposed UPI Merchant Discount Rate (MDR) framework introduces a differentiated charging structure for selected Person-to-Merchant (P2M) transactions from 15 October 2026 while keeping consumer and Person-to-Person payments free. P2M transactions up to ₹2,000 will carry no MDR, while standard transactions above ₹2,000 will attract MDR at 0.4%, capped at ₹300 for transactions of ₹75,000 and above. Qualifying small merchants under the P2PM framework, with inward UPI collections up to ₹1 lakh per month, continue to receive zero-MDR protection. Certain specified sectors, including railways, telecom, insurance and fuel, are proposed to attract a flat ₹5 MDR for transactions above ₹2,000, while capital-market transactions are subject to a separate 0.02% rate capped at ₹300. The framework also provides that merchants cannot pass MDR on to customers and proposes a dedicated fund to strengthen digital-payment infrastructure and small-merchant adoption. The policy seeks to create a sustainable commercial framework for UPI while preserving accessibility for consumers and smaller merchants.
- 1. Introduction
- 2. Policy Objectives and Rationale
- 3. Core MDR Framework for P2M Transactions
- 4. Effective Date and Implementation
- 5. Impact on Consumers
- 6. Small Merchants and P2PM Framework
- 7. Dedicated Fund for Small Merchants
- 8. Large Merchants and E-Commerce Platforms
- 9. Special Flat MDR Categories
- 11. Credit-Linked UPI Transactions
- 12. International Context and Sustainability
- 13. Cybersecurity and Innovation
- 14. Key Practical Takeaways
- 15. Conclusion
1. Introduction
The Frequently Asked Questions (FAQs) dated 15 September 2026 set out a proposed framework for introducing Merchant Discount Rate (MDR) on selected Person-to-Merchant (P2M) UPI transactions. The stated objective is to create a sustainable commercial framework for the UPI ecosystem while preserving free UPI payments for consumers and protecting small-value transactions.
The framework provides a threshold-based MDR of 0.4% for specified P2M transactions above ₹2,000, with a maximum cap of ₹300 for transactions of ₹75,000 and above. It also provides special treatment for micro-merchants, certain industry categories and capital- market transactions.
2. Policy Objectives and Rationale
- UPI processes billions of transactions each month and the MDR is intended to support investment in infrastructure resiliency, innovation, cybersecurity and customer service.
- The FAQs state that UPI charges are substantially lower than charges associated with traditional payment instruments such as credit cards, debit cards and wallets.
- The MDR is intended to apply only above ₹2,000 so that UPI remains an affordable payment-acceptance mechanism.
- More than 95% of UPI P2M transaction volume is stated to consist of transactions up to ₹2,000; such transactions are therefore not impacted.
- The proposed commercial model is intended to reduce reliance on government subsidies and provide predictable funding for technology, fraud prevention, server bandwidth and banking support.
- The FAQs state that a sustainable commercial framework may encourage competition by making it easier for fintech start-ups and technology companies to compete with well- capitalised players.
3. Core MDR Framework for P2M Transactions
The principal framework described in the FAQs is as follows:
| Transaction Value | MDR | Maximum/Amount |
|---|---|---|
| Up to ₹ 2,000 |
Nil | No MDR |
| Above ₹ 2,000 and below ₹ 75,000 |
0.40% | 0.40% of transaction value |
| ₹ 75,000 and above | 0.40%, subject to cap | ₹ 300 per transaction |
Illustrations provided in the FAQs include: ₹3,000 transaction – MDR of ₹12; ₹50,000 transaction – MDR of ₹200; and ₹1,00,000 transaction – the percentage calculation of ₹400 is restricted to the maximum cap of ₹300.
4. Effective Date and Implementation
The FAQs state that the finalized MDR framework and threshold structure will take effect from 15 October 2026. The stated purpose of this lead time is to enable acquiring banks, payment aggregators, fintech applications and corporate accounting platforms to update their software engines and billing systems.
5. Impact on Consumers
- Consumers will continue to use UPI without transaction charges.
- Person-to-Person (P2P) transfers, including transfers to family or friends and self- transfers, remain free.
- UPI application providers shall not charge a platform fee or other charge for UPI payments.
- Consumers scanning QR codes at local vendors and shops will not bear the MDR.
- The FAQs state that there are no monthly quotas or commercial fee thresholds for consumers; standard daily security limits imposed for risk management are distinct from transaction charges.
- UPI AutoPay/mandate-based recurring payments such as utility bills, OTT subscriptions and recurring investments are stated not to carry the prescribed MDR.
6. Small Merchants and P2PM Framework
A key protection under the proposed framework is the P2PM category. The FAQs describe P2PM as a specialized category for small vendors receiving payments directly into their own bank accounts.
- Small merchants under the P2PM framework continue with zero MDR.
- The FAQs identify the P2PM threshold as inward UPI collections of up to ₹1 lakh per month.
- Eligibility is stated to depend on merchant categorisation and the monthly collection threshold, rather than GST registration.
- Existing QR codes, physical QR stands and soundboxes can continue to be used; merchants are not required to replace or re-register their QR infrastructure merely because of the framework.
- A payment above ₹2,000 does not by itself trigger MDR where the merchant remains within an exempt P2PM category.
- Acquiring banks/payment service providers are expected to monitor inward transaction velocity. Merchants exceeding ₹1 lakh per month consecutively for three months are stated to be transitioned to the P2M category.
- Zero-MDR protection also applies to qualifying P2PM QR payments in rural and semi- urban areas.
7. Dedicated Fund for Small Merchants
The FAQs propose a dedicated fund to subsidise and accelerate digital-payment infrastructure in Tier 3–6 centres, including the North-East, Jammu & Kashmir and Ladakh. Notified Central Government schemes in Tier 1 and Tier 2 centres, such as PM SVANidhi and PM Vishwakarma, are also proposed to be included.
The fund is intended to provide financial assistance to acquiring banks and payment aggregators for merchant onboarding and incentives for UPI transactions originating from small merchants, particularly in rural and smaller centres. The detailed framework is stated to be finalised in consultation with the RBI within three months.
8. Large Merchants and E-Commerce Platforms
Large commercial merchants are subject to the standard 0.4% MDR for P2M transactions above ₹2,000, subject to the ₹300 cap for transactions of ₹75,000 and above. Transactions below ₹2,000 remain free under the framework.
The FAQs state that merchants cannot pass the MDR on to buyers. Consumers are therefore intended to pay only the posted price.
9. Special Flat MDR Categories
Certain industry categories are proposed to receive a flat MDR of ₹5 for transactions above ₹2,000 rather than the standard 0.4% rate. The FAQs identify categories including railways, telecom services, insurance and fuel.
| Category/Example | Transaction | MDR |
|---|---|---|
| Insurance premiums | Above ₹ 2,000 |
₹ 5 flat |
| Fuel purchases | Above ₹ 2,000 |
₹ 5 flat |
| Public utility bills | Above ₹ 2,000 |
₹ 5 flat |
| Railways/Telecom and other specified categories | Above ₹ 2,000 |
₹ 5 flat |
0.02% of the transaction value, subject to a maximum cap of ₹300.
The category covers regulated capital-market entities such as asset management companies, SEBI-registered stockbrokers, securities dealers and investment platforms. The stated scope includes UPI payments for equity purchases, debt-market investments, mutual-fund purchases and broker wallet top-ups.
11. Credit-Linked UPI Transactions
The FAQs distinguish direct account-to-merchant UPI transactions from credit-linked UPI payments, such as RuPay Credit Cards linked to UPI or pre-sanctioned bank credit lines. Credit-linked transactions are stated to operate under separate credit-product rules and standard credit-card guidelines. The MDR discussed in the FAQs is specifically stated to apply to direct user-account-to-merchant-account UPI transactions.
12. International Context and Sustainability
The FAQs state that global payment systems and digital public infrastructures generally use economic models that support infrastructure and innovation, while India’s approach continues to prioritise accessibility, scale and inclusion.
The FAQs further state that UPI’s global footprint had expanded to live payment services across 11 foreign countries as of 2026. They also report that UPI processed 2,451 crore transactions valued at ₹29.9 lakh crore in August 2026. The stated rationale is that a system operating at this scale requires substantial physical infrastructure, telecommunications, cybersecurity monitoring and specialised banking software.
13. Cybersecurity and Innovation
Revenue generated through MDR is intended to support cybersecurity infrastructure, AI- driven fraud detection, encryption upgrades and other resilience measures. The FAQs present MDR as a mechanism for creating a recurring source of funds for continued technological investment.
14. Key Practical Takeaways
- Consumer UPI payments remain free under the framework described in the FAQs.
- P2P UPI transactions remain free.
- P2M transactions up to ₹2,000 carry no MDR.
- Standard P2M transactions above ₹2,000 attract 0.4% MDR, subject to the ₹300 cap from ₹75,000 upward.
- Qualifying P2PM micro-merchants remain protected by zero MDR up to the stated ₹1 lakh monthly inward-collection threshold.
- Certain specified sectors receive a flat ₹5 MDR above ₹2,000.
- Capital-market transactions are subject to a separate 0.02% rate with a ₹300 maximum.
- MDR cannot be passed on to consumers according to the FAQs.
- Existing QR infrastructure can continue to be used by small merchants.
- The framework is stated to become effective from 15 October 2026.
15. Conclusion
The proposed UPI MDR framework described in the FAQs seeks to balance three objectives: preserving free and accessible UPI usage for consumers, protecting small and micro- merchants, and creating a commercially sustainable funding mechanism for the UPI ecosystem. The framework differentiates between ordinary P2M transactions, protected P2PM merchants, large-value transactions, industry-specific categories and capital-market payments.
For businesses, the most important operational points are the ₹2,000 threshold, the 0.4% standard MDR, the ₹300 cap for transactions of ₹75,000 and above, the special ₹5 flat-rate categories, the separate 0.02% capital-market rate, and the P2PM zero-MDR framework. The FAQs should be read as the source document for the specific policy details set out in this article; implementation details may depend on the finalized operational framework and applicable directions.
