The National Payments Corporation of India (NPCI) has announced a new Merchant Discount Rate (MDR) framework for selected UPI merchant transactions. The new system will apply from October 15, 2026, but it does not mean that customers will start paying a fee every time they use UPI.
Person-to-person (P2P) UPI transfers will remain completely free, regardless of the amount. Payments made to merchants up to ₹2,000 will also remain free, while MDR will apply only to specified merchant transactions above ₹2,000.
Who Will Pay the UPI MDR Charge?
MDR is a fee within the merchant payment ecosystem and is not a direct charge on UPI users. Under the new framework, eligible merchant transactions above ₹2,000 will generally attract an MDR of 0.4%, with the charge capped at ₹300 per transaction for payments of ₹75,000 or more.
Banks have been advised to ensure that merchants do not pass the MDR cost on to customers. UPI app providers have also been prohibited from adding platform fees or hidden charges to these payments.
Small merchants receiving up to ₹1 lakh per month through eligible UPI QR transactions will continue to receive zero-MDR treatment, providing protection for many neighbourhood shops and small businesses.
Special MDR Rules for Insurance, Fuel and Utility Payments
Some sectors will have a different MDR structure because of their payment patterns and relatively thin margins.
Payments above ₹2,000 in sectors such as insurance, fuel, railways and telecommunications will attract a flat MDR of ₹5 per transaction, instead of the standard 0.4% rate.
The same flat-fee approach applies to several public utility payments, including electricity, water and piped natural gas, with payments up to ₹2,000 remaining outside the MDR framework. Education payments have also been included in the designated sector framework, covering payments such as school and university fees.
Capital Market Payments and UPI AutoPay
Capital market transactions have been assigned a lower MDR rate. Payments involving mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, capped at ₹300 per transaction.
UPI AutoPay and other recurring UPI mandate payments will not attract MDR. This covers automated payments such as OTT subscriptions, recurring utility bills and mutual fund SIPs.
The key point for consumers is that the new MDR framework is designed around merchant-side payments, while personal UPI transfers will continue to remain free.