Full Breakdown
New 0.4 % Merchant Discount Rate for UPI Payments Above INR2,000
By Drooid · · How we work
Core Event
The National Payments Corporation of India (NPCI) announced a Merchant Discount Rate (MDR) of 0.4 % for person-to-merchant (P2M) UPI transactions exceeding INR2,000, capped at INR300 per transaction for payments of INR75,000 or more. The framework becomes effective on October 15, 2026 (scheduled). Person-to-person (P2P) transfers and P2M payments up to the INR2,000 threshold remain free.
Background & Context
UPI, launched on August 25 2016 (occurred), has become the world’s largest real-time payment system, handling 2,366 crore transactions worth INR29.9 lakh crore in July 2026. Until now, UPI operated under a zero-MDR regime. A September 14 government gazette notification removed the exemption for payments above INR2,000, creating legal space for the new charge. The amendment follows the 2026 change to Section 10A of the Payment and Settlement Systems Act, 2007, which previously barred fees on low-value UPI and RuPay debit-card payments.
Data & Statistics
- P2M transactions above INR2,000 represent roughly 4 % of UPI volume but about two-thirds of total transaction value in FY 2025-26.
- The MDR could generate up to INR16,000 crore annually, or around INR13,000 crore if a 25-basis-point rate is applied (News18, Freepress Journal).
- For a INR75,000 purchase, the MDR reaches the INR300 cap; a INR2,000 transaction incurs an INR8 fee.
- Railways, telecom, insurance and fuel will face a flat INR5 fee per transaction, while capital-market payments will be charged 0.02 % capped at INR300.
Official Statements & Responses
NPCI’s release framed the fee as a “reasonable MDR” intended to sustain the ecosystem while keeping everyday payments affordable. Revenue will be shared among banks, payment service providers and NPCI to fund infrastructure upgrades, cybersecurity and innovation.
Conflicting Reports & Gaps
Sources differ on the exact rate beyond the 0.4 % figure. While NPCI fixes the MDR at 0.4 % for qualifying transactions, industry insiders cited by News18 and Freepress Journal expect the steering committee to set a lower rate of 25-30 bps for large merchants. The final rate and the scope of merchant eligibility remain unspecified.
Verbatim Quotes
- “For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction,” — The NPCI
- “The MDR is distributed only amongst the UPI ecosystem, to further invest into infrastructure resiliency, innovation, cybersecurity (protecting the UPI Infrastructure with banks and non-banks) and customer service,” — The NPCI
- “The initiative will expand UPI acceptance, encourage sustained usage, and accelerate the inclusion of small businesses in India's digital payment ecosystem,” — The NPCI
What’s Next
The UPI and Services Steering Committee, comprising 22 members from banks, fintech firms and industry bodies, met on September 15 2026 (occurred) to finalize the MDR rate and revenue-sharing mechanism. Detailed guidelines on merchant eligibility and MDR distribution are expected in the weeks following the meeting.
