From 15 October 2026, India’s announced UPI framework sets a standard merchant discount rate (MDR) of 0.4% on qualifying person-to-merchant (P2M) payments above ₹2,000, subject to a cap of ₹300 per transaction at ₹75,000 and above. The fee is a merchant-side payment distributed across payment-ecosystem participants—not a government tax—but the official documents do not publish how much any bank, payment service provider, aggregator or UPI app will receive.
How the 0.4% UPI MDR is meant to flow
The Ministry of Finance says MDR is paid within the merchant payment ecosystem. Its 15 September 2026 release states: “It is clarified that MDR is neither a tax nor a charge collected by the Government or NPCI.” The announced framework describes distribution among ecosystem participants, including banks and payment application providers; it also identifies banks, payment service providers and UPI application providers as participants whose infrastructure and operations the revenue can support. The Ministry’s PIB release and the Department of Financial Services FAQ do not set out a payment waterfall or percentage shares for those participants.
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The UPI and Services Steering Committee, headed by NPCI, decides operational parameters and fee-distribution models. That identifies who sets the model, not a published split. The official material reviewed does not say what portion goes to an acquiring bank, an issuer bank, a payment aggregator, a fintech application or any individual UPI app. Any precise split should be treated as unverified unless a later NPCI circular or committee document establishes it.
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The rate depends on the type of transfer, amount, merchant classification and sector. The baseline 0.4% is not a universal charge on every UPI payment. The framework is scheduled to take effect on 15 October 2026; the Ministry’s FAQ and release were published on 15 September, before commencement.
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| Transaction or merchant category | Announced treatment from 15 October 2026 |
|---|---|
| Person-to-person (P2P) | Free regardless of amount. |
| P2M payment of ₹2,000 or less | Zero MDR. |
| Standard P2M payment above ₹2,000 | 0.4% MDR, capped at ₹300 for a transaction of ₹75,000 or more. |
| Eligible P2PM small merchant | Zero MDR on all transactions while the merchant remains in the exempt classification, including a single payment above ₹2,000. |
| Specified essential and thin-margin sectors | Flat ₹5 MDR on transactions above ₹2,000 for categories including railways, telecommunications, insurance, fuel and agricultural inputs. |
| Capital-market payments | 0.02%, capped at ₹300 per transaction, for mutual funds, securities, stockbrokers and dealers. |
| Credit-linked UPI | Separate credit-product rules apply; the described change concerns direct user-bank-account-to-merchant-account UPI payments. |
The sector lists are described as inclusive examples in the official materials, not necessarily exhaustive categories. For the exact wording and exceptions, consult the PIB announcement and official FAQ.
What the standard MDR means in rupees
For a standard-category merchant, the FAQ illustrates the 0.4% calculation with these amounts. The cap applies once the transaction reaches ₹75,000, so the charge does not keep rising above ₹300.
| Payment amount | Calculation | MDR |
|---|---|---|
| ₹3,000 | 0.4% of ₹3,000 | ₹12 |
| ₹50,000 | 0.4% of ₹50,000 | ₹200 |
| ₹75,000 or more | 0.4%, subject to the transaction cap | ₹300 maximum |
These examples describe the standard merchant category only. A payment to an exempt P2PM merchant or a merchant in a special category can have a different treatment.
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How the P2PM small-merchant exemption works
The PIB release says eligible small merchants, including street vendors, receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category continue to have zero MDR on all transactions. The FAQ says a merchant whose inward UPI credits exceed ₹1 lakh per month for three consecutive months transitions to P2M classification. A single transaction above ₹2,000 does not, by itself, trigger MDR for a merchant that remains in the exempt P2PM category.
This distinction matters because the ₹2,000 threshold is not the only test. A qualifying P2PM merchant can receive a payment above that amount without the standard fee, while a standard P2M merchant’s qualifying payment above ₹2,000 is subject to the relevant rate.
What is known—and not known—about the recipients
The policy names broad participant groups, but does not explain the allocation mechanics. It does not say whether shares are calculated in a particular order, how much goes to the payer’s bank versus the merchant’s acquiring bank, or what share an app or aggregator receives. The committee’s role in setting a distribution model should not be mistaken for publication of that model.
The FAQ says acquiring banks, payment aggregators, fintech applications and corporate accounting platforms have time to update software and billing systems before 15 October. That indicates operational changes are expected; it does not establish that any named provider will win business or receive a particular revenue share. The FAQ also says the detailed framework for a small-merchant fund will be finalized with RBI consultation within three months. Its design and actual disbursements are not settled in the cited announcement.
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Official guidance treats MDR as a merchant-side fee. The Ministry says banks have been advised to prevent merchants from passing MDR on to customers, and UPI app providers may not add a platform or hidden fee for UPI payments. These are the announced rules and guidance; because the framework had not yet commenced as of the 5 October 2026 research date, post-launch enforcement and practice were not established.
How many payments are expected to be affected?
The Ministry of Finance’s 2026 PIB release estimates that about 4% of merchant transactions will be subject to MDR and approximately 96% will remain unaffected. Separately, the Department of Financial Services FAQ says more than 95% of P2M transaction volume is at or below ₹2,000. These are different measures and should not be conflated: one is the release’s estimate of merchant transactions affected, while the other describes the share of P2M volume at or below the zero-MDR threshold.
The FAQ reports 2,451 crore UPI transactions valued at ₹29.9 lakh crore in August 2026. It also describes around ₹20,000 crore in annual operating costs as an industry estimate, not an audited government cost calculation.
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