UPI MDR: What Changes From October 15?

The new UPI Merchant Discount Rate (MDR) framework will bring charges on select merchant transactions above ₹2,000 from October 15, 2026.

However, merchants will not face a single uniform rate. Instead, MDR will differ across sectors, with certain essential services receiving concessional rates to control payment costs.

For most specified person-to-merchant (P2M) transactions above ₹2,000, the MDR will be 0.4%. Transactions of ₹75,000 and above will have a maximum MDR of ₹300 per transaction.

At the same time, several essential and thin-margin sectors will receive a concessional structure.

Transactions above ₹2,000 for railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat ₹5 MDR.

Utility payments will also receive similar treatment. Electricity, municipal water and piped natural gas payments above ₹2,000 will carry an MDR of ₹5.

Payments below ₹2,000 in these specified categories will remain outside MDR.

The flat-rate model is designed to provide greater cost certainty for merchants. Under a percentage-based MDR, processing costs increase as transaction values rise.

A fixed ₹5 charge keeps the merchant-side cost unchanged for qualifying high-value payments.

For instance, a ₹10,000 UPI payment in an eligible concessional sector would incur just ₹5 in MDR.

Under the standard 0.4% rate, the same transaction would attract ₹40, creating a significant difference in merchant-side payment processing costs for higher-value transactions.

Importantly, the MDR is not a consumer fee. The government has clarified that merchants cannot separately pass the MDR on to customers.

Person-to-person UPI transfers will continue to remain free. Merchant payments up to ₹2,000 will also remain outside MDR under the new framework.

The government said MDR collections will be shared among key UPI ecosystem participants, including banks and payment application providers.

The move is intended to support the continued functioning and expansion of UPI while providing greater cost predictability to essential services and businesses operating on narrow profit margins.

Image by Mohamed Hassan from Pxhere (Free for commercial use / CC0 Public Domain)

Image published on December 06, 2023

Image Reference: https://pxhere.com/en/photo/1681900