The government on Tuesday introduced a revised framework for UPI merchant payments, with transactions above Rs 2,000 attracting a Merchant Discount Rate (MDR) of 0.4 per cent, capped at Rs 300 per transaction, from October 15, 2026.
Consumers will continue to use UPI free of cost, while person-to-person (P2P) transactions and person-to-merchant (P2M) payments up to Rs 2,000 will remain outside the MDR regime. The government said these low-value transactions account for more than 95 per cent of all UPI P2M transactions.
The move marks a shift from the zero-MDR regime for UPI merchant payments introduced in January 2020 to encourage digital payments. The system had faced criticism from banks and fintech companies over its sustainability.
Under the revised framework, a flat MDR of Rs 5 per transaction will apply to UPI payments above Rs 2,000 in specified merchant categories, including railways, telecom services, insurance and fuel.
Small merchants under the person-to-person merchant (P2PM) framework will also continue to pay zero MDR. The category covers small vendors receiving up to Rs 1 lakh a month through UPI QR payments directly into their bank accounts.
The government has proposed a dedicated fund for small merchants to support digital payment infrastructure, particularly in Tier-3 and smaller markets. It said a portion of the revenue generated through MDR on high-value transactions would be used to expand UPI access among new users and merchants and support investments in resilience, cybersecurity and innovation.
The revised framework also bars UPI app providers from imposing additional platform fees and directs banks to ensure that merchants do not pass MDR costs on to customers.
The government said the revised MDR would remain lower than charges associated with several other digital payment instruments, including credit cards, debit cards and wallets.
Person-to-person UPI transfers, which account for around 37 per cent of UPI transaction volume and 70 per cent of its value, will remain unaffected by the changes.
(With inputs from PTI)
