NPCI introduces 0.4% MDR charge on UPI payments above ₹2,000, exempts small merchants, person-to-person transfers

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All person-to-person UPI transactions and UPI transactions to small vendors will be exempt from the charges, as will person-to-merchant transactions of a value less than ₹2,000 per transaction done on UPI or through RuPay debit cards. File image for representation only. | Photo Credit: The Hindu

The National Payments Corporation of India (NPCI) has introduced a Merchant Discount Rate (MDR) charge of 0.4% that large merchants will have to pay banks and payment processors on UPI payments they receive in excess of ₹2,000 per transaction, it said in a circular issued on Tuesday (September 15, 2026).

All person-to-person UPI transactions and UPI transactions to small vendors will be exempt from the charges, as will person-to-merchant transactions of a value less than ₹2,000 per transaction done on UPI or through RuPay debit cards. 

“For person-to-person (P2P) transactions, there will be no charges at all, irrespective of transaction value,” the Ministry of Finance said in a release. “P2P transactions constitute 37% of the total UPI transaction in volume terms and 70% in value terms.”

“Charges will apply only to person-to-merchant (P2M) transactions exceeding ₹2,000,” it added.

Further, the government said that banks have been advised to ensure that merchants do not pass MDR charges to customers for UPI payments, which had been a key fear when the issue was being discussed in the public domain.

Under the MDR framework, an MDR charge of 0.4% will be levied on P2M transactions above ₹2,000.

“This commission will be shared amongst the payment ecosystem partners including banks and app providers,” the release said. “For high-value transactions of ₹75,000 and above, MDR will be capped at ₹300 per transaction.”

According to the notification, small merchants receiving up to ₹1 lakh per month via UPI QR codes under the Person-to-Person Merchant (P2PM) classification will not have to pay any MDR on any UPI transactions they receive.

“This bridges informal street vendor setups with formal merchant acquiring accounts, promoting digital adoption in the unorganised sector,” the government said.

However, transactions pertaining to certain essential sectors will attract a flat MDR rather than a percentage.

“Railways, telecom, insurance, fuel sectors, agriculture inputs etc will pay a flat MDR of ₹5 per transaction above ₹2,000,” the Ministry said. “This flat-rate model ensures cost stability in critical public services and thin-margin industries.”

Further, payments towards mutual funds, securities, stock brokers, and dealers will attract an MDR of 0.02%, capped at ₹300, the government said.

This reduced rate, it explained, was aimed at encouraging retail participation in formal financial markets.

“The new MDR framework will make UPI self-sustainable, give incentives for further expansion in rural and semi urban areas and maintain  competitiveness, while ensuring that a large majority of payments remain free of charge,” the Finance Ministry said.

It added that its data analysis shows that only 4% of merchant transactions will be impacted by the MDR introduction, since most transactions fall below the ₹2,000 threshold or qualify under the zero-MDR P2PM framework.

Further, a dedicated fund for promoting the use of UPI by small merchants will be set up using 5% of the total MDR collections.

“This initiative will expand UPI acceptance, encourage sustained usage, and accelerate the inclusion of small businesses in India’s digital payments ecosystem,” the government said.

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