India Introduces Merchant Discount Rate on UPI Payments

On October 15 2026, the National Payments Corporation of India (NPCI) will apply a 0.4 percent merchant discount rate (MDR) to Unified Payments Interface (UPI) transactions exceeding INR2,000. The fee is capped at INR300 for payments of INR75,000 or more and a flat INR5 charge applies to essential-service merchants such as railways, telecom, insurance and fuel providers. Person-to-person transfers and merchant payments up to INR2,000 remain free, and small merchants receiving up to INR100,000 per month via QR-code payments are exempt.

India to Impose 0.4% Merchant Fee on Larger UPI Payments Starting October 15 — BigGo Finance India ends zero UPI fee era with charges on merchant payments above INR2,000

UPI, launched in 2016, now handles more than 84 percent of domestic digital payments by volume. A 2020 amendment removed all merchant fees, creating a zero-MDR regime that spurred rapid adoption. In August 2026, UPI processed 24.5 billion transactions worth INR29.9 trillion (? $311 billion). The government amended the Payment and Settlement Systems Act on September 14 2026 to permit fees on transactions above the INR2,000 threshold, citing the need for sustainable financing of infrastructure and cybersecurity.

India ends zero UPI fee era with charges on merchant payments above INR2,000

The NPCI described the MDR as a “dedicated fund” mechanism to support UPI expansion among small merchants, with the fund to be finalised in consultation with the Reserve Bank of India (RBI) within three months. The finance ministry emphasized that MDR is not a tax and that banks must prevent merchants from passing the charge on to consumers. Payment-app providers such as PhonePe and Paytm said the fee will generate new revenue streams while keeping consumer-side costs unchanged.

India ends zero UPI fee era with charges on merchant payments above INR2,000 Reuters

The Retailers Association of India warned that the fee could push small merchants back toward cash. Opposition spokesperson Jairam Ramesh (Congress) alleged the policy reflects “US pressure” to open the market to foreign card companies and warned that merchants may transfer the cost to consumers. Economist Santosh Mehrotra called the shift “unfair” because banks and apps have already profited from the zero-MDR model. Rahul Gandhi (Congress) echoed concerns that merchants may ultimately pass the charge to buyers, labeling the MDR a “digital payments tax.”

India ends zero UPI fee era with charges on merchant payments above INR2,000

Revenue-pool estimates differ: Citi projects INR160-170 billion, while other analysts cite a single figure of INR170 billion. The precise distribution of fees among banks, app providers and aggregators remains unverified until the first full year of implementation. The impact on consumer pricing is projected by critics but not quantified by the government or regulators.

Reuters

The MDR framework will take effect on October 15 2026. NPCI plans to allocate 5 percent of total MDR collections to a fund for expanding UPI acceptance among small merchants, with final details to be settled with the RBI within three months. Banks have been instructed to enforce the exemption for small merchants and to monitor compliance with the prohibition on passing fees to consumers. Market participants and trade bodies have signalled intent to engage with the NPCI and the Ministry of Finance on possible fee-structure adjustments.

India ends zero UPI fee era with charges on merchant payments above INR2,000