Agencies | New Delhi:
Unified Payments Interface (UPI) payments between individuals will continue to remain free, while merchant transactions above ₹2,000 will attract a Merchant Discount Rate (MDR) of 0.4% from October 15, 2026, the government said on Tuesday.
According to the Ministry of Finance, MDR on eligible high-value merchant transactions will be capped at ₹300 per transaction for payments of ₹75,000 and above.
The government clarified that person-to-person (P2P) UPI transactions will not attract any charges, irrespective of the transaction value.
P2P transactions account for around 37% of total UPI transactions by volume and nearly 70% by value, according to the ministry.
Banks have also been advised to ensure that merchants do not pass the MDR cost on to customers making UPI payments.
The Finance Ministry said the 0.4% MDR collected on eligible UPI merchant transactions would be distributed among participants in the digital payments ecosystem, including banks and UPI application providers.
“Data analysis indicates that only 4 percentage of merchant transactions will be impacted by the MDR introduction,” the ministry said, noting that most transactions either fall below the ₹2,000 threshold or qualify for zero MDR under the P2PM framework.
The government said the structure would help shield micro and small businesses from additional payment costs.
Certain essential sectors will instead attract a flat MDR of ₹5 per transaction for payments above ₹2,000.
These categories include railways, telecom, insurance, fuel and agricultural inputs, among others.
The flat-rate mechanism is intended to provide greater cost predictability for essential public services and industries operating on relatively thin margins.
According to the ministry, these categories account for nearly 17% of UPI P2M transaction volumes and around 46% of merchant transaction value.
Capital market-related UPI transactions will attract an even lower rate of 0.02%, capped at ₹300 per transaction.
The category will cover payments involving mutual funds, securities, stock brokers and dealers.
Small vendors covered under the Person-to-Person-Merchant (P2PM) framework will continue to enjoy zero MDR.
Under the framework, small merchants receiving up to ₹1 lakh per month through UPI QR codes will not be charged MDR on eligible transactions.
The government said the provision is aimed at helping small and informal businesses adopt formal merchant-acquiring systems while encouraging wider use of digital payments in the unorganised sector.
The ministry also announced plans to establish a dedicated fund to promote UPI adoption among small merchants. The fund will receive 5% of total MDR collections.
The government said the initiative would help expand UPI acceptance, encourage sustained usage and accelerate the integration of small businesses into India’s digital payments ecosystem.
