The government has announced the introduction of a Merchant Discount Rate (MDR) for payments made via UPI. At the UPI Steering Committee meeting held on September 15, it was decided that the UPI MDR for transactions exceeding 2000 rupees will be 40 basis points, or 0.4 percent. This means that merchants will have to pay 0.4% on payments exceeding 2000 rupees.
The new UPI MDR regulation will take effect for certain merchants (P2M) starting October 15, 2026. Meanwhile, customers will incur no costs. The commission will also not apply if the transfer is between UPI users.
Under the new rules, small merchants earning up to 100,000 rupees monthly through QR codes are exempt from paying MDR. For special categories such as railways and fuel, a fixed fee of 5 rupees will be charged for transactions over 2000 rupees, while for other higher-value P2M transactions, a 0.4% commission will apply, capped at a maximum of 300 rupees.
This implies that when making a personal payment to a merchant (P2M) exceeding 2000 rupees, the recipient will receive no more than 300 rupees in MDR. Furthermore, for fuel and diesel fuel, the MDR commission for the merchant via UPI will be a maximum of 5 rupees.
The new provisions stipulate that merchants receiving payments of less than 2000 rupees will not pay any commission, which accounts for 95% of all cases. Thus, this commission will only affect 5% of merchants. As part of this initiative, the government will establish a special fund to modernize digital payment infrastructure for small traders and Tier 3 markets.
The government explains the introduction of these norms by stating that UPI has become a very large system requiring funding for safe operation. Investments are necessary to prevent fraud, ensure cybersecurity, and facilitate continuous innovation. The government aims to create this fund by introducing MDR on UPI payments, as relying solely on government subsidies is impossible and unsustainable.
