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Merchant Discount Rate (MDR) is a fee paid by merchants to banks and payment service providers for processing digital payment transactions. The proposed MDR framework aims to support:
The objective is to create a long-term funding model for managing the rapidly growing UPI transaction network
UPI remains completely free for consumers. The proposed MDR framework does not impose any charges on individual users making UPI payments. Customers will continue enjoying free UPI services just as they do today. Consumer UPI Payments : here we clearly states: Consumer UPI remains free, P2P (Person-to-Person) transfers remain free, UPI apps cannot charge users a platform fee. QR code scanning remains free for customers. Examples Free: Sending INR 50,000 to a friend. And Paying rent to a family member. Transferring money between your own bank accounts.
Special relief for small merchants.: Small Merchant Category (P2PM) : Merchants receiving up to INR 1 lakh per month through UPI QR continue to enjoy: Zero MDR : This means Kirana stores, Small retailers, Local businesses and Rural merchants remain unaffected if they fall within the prescribed limit.
For larger merchants: MDR = 0.4%. Applicable on Merchant payments above INR 2,000, However, 0% MDR up to INR 2,000 and 0.4% MDR above INR 2,000. Maximum MDR capped at INR 300 per transaction. For Example
| Transaction Value | MDR |
| INR 1,500 | Nil |
| INR 5,000 | INR 20 |
| INR 25,000 | INR 100 |
| INR 75,000 | INR 300 |
| INR 1,00,000 | INR 300 (capped) |
Therefore, MDR cannot exceed INR 300 per transaction.
certain sectors where a flat INR 5 MDR may apply on transactions above INR 2,000: Railways, Telecom, Insurance, Fuel and Certain specified sectors. Example: Insurance premium paid through UPI: INR 1,500 premium → No MDR and if INR 10,000 premium → INR 5 MDR to merchant/service provider.
For mutual funds, stockbrokers, securities, and investment platforms: MDR = 0.02% with a cap of INR 300. Example: Investment through UPI: INR 100,000 mutual fund investment, then MDR = INR 20
Customers do NOT pay MDR. The MDR is a merchant-side charge, paid by businesses receiving payments and not to be recovered from customers. Effective Date: Proposed Effective Date: 15 October 2026
According to the proposal, approximately 96% of merchant UPI transactions will continue without MDR. This is because Small merchants remain exempt. Transactions up to ₹2,000 remain exempt. and Person-to-person transfers remain exempt. As a result, most day-to-day UPI payments made by consumers will continue exactly as before.
The headline “UPI Charges from October 15” can be misleading. The proposal does not mean that UPI users will start paying fees. Instead: Consumers continue to use UPI free of cost, Small merchants remain largely unaffected. Only certain larger merchants may pay a 0.4% MDR on UPI receipts above INR 2,000. The charge is a merchant-side cost, not a customer-side charge.
For the average UPI user, nothing changes. Sending money to friends remains free. Receiving money remains free. Paying small merchants remains free. No charge on QR scanning and No platform fee on UPI apps. Only certain large merchant transactions exceeding INR 2,000 may attract a 0.4% MDR, while small merchants continue to enjoy zero MDR. The infographic’s overall message is that UPI remains free for consumers, with MDR proposed only as a merchant ecosystem charge for selected categories.
From 15 Oct 2026, UPI P2M (Person-to-Merchant) transactions above ₹2,000 will attract 0.40% MDR, capped at INR 300/transaction.
INR 10,000 UPI payment = INR 40 MDR
• Issuer Bank: INR 16 (40%)
• Acquirer Bank: INR 12 (30%)
• UPI App: INR 8 (20%)
• Partner Bank: INR 4 (10%)
Cost comparison: UPI 0.40% | Debit Card up to 0.90% | Credit Card typically 1.5–2.5%
Market Intelligence: The bigger shift is UPI monetisation. Banks, acquirers and payment apps now get a direct revenue stream from India’s largest digital-payment rail.
Merchant pays; customer officially doesn’t. Selected categories have separate capped/special MDR structures.
UPI remains cheaper than cards, but the era of “free UPI” is entering a new chapter.
For the average UPI user:
UPI is still free for consumers. The proposed MDR is primarily a merchant ecosystem charge affecting only selected categories of larger merchants.
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