UPI MDR is coming back: what the 0.4% merchant fee is, and why it was deferred

What is the UPI MDR announced in September 2026?

A merchant discount rate is what a business pays its bank for accepting a digital payment. UPI payments from a bank account have carried no MDR since January 2020. The FAQs published on 15 September 2026, which the Ministry of Finance’s Department of Financial Services hosts as well, change that for larger merchant payments. They say: “A MDR of 0.4% will be introduced on Person-to-Merchant (P2M) UPI transactions above ₹ 2,000/-. For transactions of ₹75,000/- and above, the MDR will be capped at ₹300 per transaction.”

The merchant pays it, not the customer. The FAQs say merchants “cannot pass on MDR charges to customers”, and that UPI apps “shall NOT charge Platform Fee or any other charge for any payment made through UPI”. NPCI says the MDR is shared only within the UPI ecosystem — banks and the apps and processors that run UPI — to pay for infrastructure, cybersecurity, fraud prevention and customer service. It is not a tax collected by the government.

Who stays exempt?

The FAQs put most everyday UPI use outside the charge. NPCI says payments up to ₹2,000 make up more than 95% of P2M volume (the government’s press release on the same framework put it at 96%).

• Consumers. Paying by UPI or scanning a QR code stays free for the payer, at any amount.
• Person-to-person transfers. Free for sender and receiver, including transfers between your own accounts.
• Small merchants on P2PM. Vendors receiving up to ₹1 lakh a month through UPI QR into their own account pay zero MDR, even on a single payment above ₹2,000. GST registration is not needed. A P2PM merchant whose UPI receipts exceed ₹1 lakh a month for three months in a row is moved to the P2M category.
• AutoPay mandates. Recurring payments set up as UPI mandates — utility bills, subscriptions, SIPs — carry no prescribed MDR.
• Credit on UPI. Payments funded by a RuPay credit card or a pre-sanctioned credit line on UPI are outside this framework; they already follow card-style pricing.

Which sectors pay a different rate?

The FAQs give the exact education structure only in general terms. They also leave the detail of how the money is divided between the payer’s app, the banks and NPCI to the UPI and Services Steering Committee, which NPCI heads.

Why is UPI MDR being introduced now?

The FAQs make three arguments. First, cost: “industry estimates indicate that maintaining UPI payment operations, server bandwidth, fraud prevention systems, and bank technical support costs around ~₹20,000 crore annually”, and annual government incentives were designed as short-term bridge funding. Second, competition: under zero MDR “only well-capitalised tech conglomerates can afford to sustain long-term operational losses”. Third, security: the revenue can fund AI-based fraud detection and cybersecurity.

Scale is the backdrop. According to NPCI data reported by the public broadcaster, UPI processed 24.51 billion transactions worth ₹29.82 lakh crore in August 2026, a record, and 24.07 billion worth ₹29.37 lakh crore in September, an average of about 802 million a day. Part of the MDR is also meant to fund a dedicated small-merchant scheme for Tier 3–6 centres, the North-East, Jammu & Kashmir and Ladakh; the FAQs say its framework will be settled with RBI within three months.

Why was it deferred, and what happens next?

Two days before the start date, NPCI’s UPI and Services Steering Committee said the decision was taken “keeping the festive season in mind”. Business Standard reported that the structure itself is unchanged; there had been talk of pushing the start to 1 January, which the committee did not adopt. Retailer groups, including the All India Mobile Retailers Association and the All India Consumer Products Distributors Federation, had asked for more time, a higher exemption threshold for small merchants and an exemption for merchant-to-merchant transactions. Listed fintech shares rebounded on the news.

The debate is not over. Business Today reported on 11 October that an IIT-Bombay report proposed a much lower rate of 0.08%. On the other side, the chairman of State Bank of India said at a Business Standard event on 26 October that UPI’s rising volumes need investment and a minimal MDR can help. As of 30 October 2026, NPCI has not notified a new date.

What should a merchant do in the meantime?

• Check which category your acquiring bank or payment aggregator has you in — P2PM, P2M or a special industry category — because that, not a single payment’s size, decides what you pay.
• Do not add a surcharge for UPI at the counter or checkout. The FAQs say the MDR cannot be passed on to customers.
• Look at how many of your payments are above ₹2,000. Below that, nothing changes.
• Watch for the notified date on NPCI’s circulars page or your bank’s notice, rather than forwarded messages. The FAQs ask the public to rely on PIB, RBI and NPCI releases.