New Delhi: India will introduce a new Merchant Discount Rate on selected Unified Payments Interface merchant transactions above Rs 2,000 from October 15, changing a zero MDR framework that has been in place for more than six years.
Under the new framework, a 0.4 per cent MDR will apply to specified person to merchant UPI payments above Rs 2,000. The charge will apply within the merchant payment system and will not be charged directly to consumers.
The National Payments Corporation of India, which operates UPI, has set a maximum MDR of Rs 300 for a single transaction. The charge will therefore reach the Rs 300 limit on transactions of Rs 75,000 or more.
The change does not apply to person to person payments. People will continue to send money to friends, relatives and other individuals through UPI without a transaction charge, regardless of the amount.
Payments to merchants up to Rs 2,000 will also remain free. Small merchants covered by the zero MDR arrangements will remain exempt under the new framework. The Ministry of Finance estimates that about 96 per cent of person to merchant UPI transactions will remain unaffected.
MDR is a charge within the payment ecosystem. It is not a tax collected by the government or NPCI. The government says the new arrangement is intended to support the long term sustainability of UPI and continued investment in infrastructure, cybersecurity, fraud prevention and other parts of the payment system.
UPI has grown rapidly since its launch in 2016 and has become a central part of India's digital payments system. NPCI data shows that UPI processed about 24.51 billion transactions worth nearly Rs 29.82 trillion in August 2026. A total of 752 banks were live on the platform during the month.
The introduction of MDR comes after years of a zero charge model for UPI merchant payments. The government has argued that the scale of the system requires continued investment as UPI expands across India.
The new framework also contains special arrangements for specified sectors. Transactions above Rs 2,000 in sectors such as railways, telecommunications, insurance and fuel will attract a flat MDR of Rs 5 under the new framework.
Payments relating to capital market activities, including mutual funds, securities and stockbrokers, will attract a separate MDR of 0.02 per cent, subject to a maximum of Rs 300 per transaction.
The government has said banks should ensure that merchants do not pass the new MDR directly to customers. However, the question of how businesses will absorb the additional cost has already led to concerns among some retailers and brokerage firms.
Retailer organisations have warned that the additional cost could put pressure on businesses operating with narrow margins. Some have also raised concerns that the new cost could encourage certain merchants to favour cash payments.
Brokerage firms have raised questions about how the new charges will be handled across large numbers of investment related transactions.
The changes are also expected to create a new revenue opportunity for banks, payment application providers and other companies involved in the UPI ecosystem. Shares of some payment companies rose after investors assessed the potential financial benefit of the new MDR framework.
However, estimates of how much additional revenue the system could generate remain projections rather than confirmed earnings. The actual impact will depend on transaction patterns, merchant behaviour and how the costs are distributed across the payment ecosystem.
The policy is also facing a legal challenge. A petition has been filed in the Supreme Court of India against the new UPI fee framework. There has been no indication that the scheduled October 15 implementation has been cancelled or suspended.
The change has also drawn political criticism. Congress leader Rahul Gandhi has questioned whether the cost could eventually reach consumers indirectly if merchants pass the additional cost into prices. The government maintains that consumers will not be charged the MDR and that UPI will continue to be free for ordinary person to person transfers.
For most UPI users, the immediate effect is expected to be limited. The more significant change will be for merchants receiving eligible payments above Rs 2,000, who will have to account for the new cost from October 15.
The new framework will take effect on October 15, when its impact on merchants and the wider UPI payment ecosystem will begin to become clearer.