India's Unified Payments Interface is set to enter a new phase after the National Payments Corporation of India (NPCI) announced a 0.4% Merchant Discount Rate (MDR) on qualifying Person-to-Merchant (P2M) UPI transactions above ₹2,000 from October 15, 2026.
The change marks a significant shift for India's digital-payment ecosystem, which has operated with no MDR on UPI merchant payments for several years.
Under the new framework, the 0.4% rate will apply to eligible merchant transactions above the ₹2,000 threshold. The MDR will be capped at ₹300 per transaction for payments of ₹75,000 and above.
The important point for ordinary UPI users is that the fee is not supposed to be charged directly to consumers. Banks have been instructed to ensure that merchants do not pass the MDR on to customers as an additional payment charge.
Person-to-person UPI transfers will continue to remain free under the new structure.
Editorial Analysis
Why This Matters
The change could reshape the economics of India's rapidly expanding UPI ecosystem. For consumers, the immediate message is that UPI itself is not becoming a paid service. Person-to-person transfers remain free, while qualifying merchant payments above ₹2,000 will enter a new MDR framework. For merchants and payment companies, however, the change could affect the cost structure of high-value digital transactions. The policy also attempts to balance two competing priorities: keeping UPI affordable for ordinary users while creating a sustainable financial model for the infrastructure supporting India's enormous digital-payment network.
What Will Change From October 15?
The revised system applies primarily to qualifying merchant payments, rather than every UPI transaction.
For example, a qualifying ₹5,000 payment to a merchant would attract an MDR calculated at 0.4%, subject to the applicable framework. However, the customer is not supposed to see a separate 0.4% UPI charge added to the payment.
The new framework is designed to create a revenue stream within the UPI ecosystem while supporting the cost of maintaining payment infrastructure, cybersecurity, fraud prevention and other digital-payment services.
Who Will Remain Exempt?
The framework continues to protect smaller-value UPI payments. More than 95% of UPI transactions, based on current transaction patterns, are valued at ₹2,000 or below and therefore remain outside the new MDR threshold.
Small merchants receiving up to ₹1 lakh per month through QR-based UPI payments are also protected from the new MDR under the framework.
Certain sectors, including railways, telecom, insurance and fuel, will have a separate flat-fee structure for qualifying transactions, according to the reported framework.
Why Is UPI Getting an MDR Now?
UPI has grown into one of the world's largest real-time payment systems. In August 2026 alone, it processed around 24.5 billion transactions worth nearly ₹29.9 lakh crore.
The new MDR framework is intended to provide sustainable funding for the payment ecosystem as transaction volumes continue to rise.
The money collected through MDR will remain within the payments ecosystem and support banks, payment service providers and other participating entities. The framework also aims to support investment in infrastructure, cybersecurity and innovation.
