Ministry of Finance Sets UPI Merchant Discount Rate Rules

The Ministry of Finance announced a new UPI framework under the Payment and Settlement Systems Act, 2007 on 15 September 2026. All person-to-person transactions and 96% of merchant payments remain free of Merchant Discount Rate charges. Specified merchant transactions above ₹2,000 will attract a nominal fee shared among payment ecosystem participants.

Rules for Free UPI Transactions

Under the framework introduced following deliberations by the UPI Steering Committee, individual customers incur no charges for sending or receiving money through UPI. All person-to-person transactions stay completely free regardless of the transferred amount. These person-to-person transfers account for 70% of total UPI transaction value. In addition, person-to-merchant payments up to ₹2,000 remain completely free of MDR for customers and merchants. Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the Person-to-Person-Merchant category also pay zero MDR. This zero-MDR provision protects street vendors, neighbourhood shops and small businesses.

Applicable MDR Charges on Specified Payments

Merchant Discount Rate applies strictly to specified merchant payments above ₹2,000, which represent about 4% of total merchant transactions. Standard merchant payments above ₹2,000 attract an MDR of 0.4%, capped at ₹300 per transaction for amounts of ₹75,000 and above. Transactions above ₹2,000 in essential and thin-margin sectors attract a flat MDR of ₹5 per transaction. The essential sectors include railways, telecommunications, insurance, fuel and agricultural inputs. Capital market payments for mutual funds, securities, stockbrokers and dealers incur an MDR of 0.02%, capped at ₹300 per transaction.

Safeguards for Consumers and Ecosystem Funding

The Ministry of Finance clarified that MDR is not a tax or charge collected by the Government or NPCI. Banks must ensure merchants do not pass MDR charges on to customers. UPI application providers cannot impose platform fees, hidden charges or monthly quotas on individuals. Daily transaction limits set by banks and NPCI generally range from ₹1 lakh to ₹5 lakh as risk safeguards rather than fee thresholds. Ecosystem participants like banks and payment providers share MDR collections to expand payment infrastructure. Furthermore, an amount equivalent to 5% of total MDR collections goes to a dedicated fund supporting small merchants.

Sources

• UPI Continues to Remain Free for Peer to Peer Transactions and 96% of Merchant Transactions — Ministry of Finance (checked 15 Oct 2026)