NPCI Updates UPI MDR Framework: Transactions Up To 2000 Rupees Remain Free

The National Payments Corporation of India (NPCI) has announced a significant update for millions of UPI users across the country, while a revised Merchant Discount Rate (MDR) framework has been released, which will bring changes to how certain merchant transactions are processed. While everyday small purchases will remain unaffected, some larger merchant payments will now attract a fee. This new framework is scheduled to come into effect from October 15, 2026, and will specifically target select Person-to-Merchant (P2M) transactions. A key highlight of this announcement is that for the general public, UPI will largely remain free of cost. On top of that, Person-to-Person (P2P) transactions between individuals will continue to be free regardless of the amount being transferred.

Implementation of the New MDR Framework

The revised UPI Merchant Discount Rate (MDR) framework is set to be implemented starting October 15, 2026. This change follows a legal foundation prepared by the government through amendments to the Payment and Settlement Systems Act, 2007. These amendments were designed to establish a clear legal basis for charges related to electronic payment modes. Following this, a notification was issued on September 14, which mandated a zero MDR for UPI transactions up to the value of 2000 rupees. This legal and regulatory progression ensures that the new fee structure is integrated into the existing financial ecosystem with proper oversight.

Zero Charges for Transactions Up To 2000 Rupees

The most significant benefit of the new rules is directed toward small-scale customers and businesses. For all UPI merchant transactions that don't exceed 2000 rupees, the MDR will remain at zero. According to data provided by NPCI, more than 95 percent of all P2M transactions in the UPI ecosystem fall within this 2000 rupee limit. This means that the vast majority of daily UPI payments made by citizens will continue to be processed without any MDR, ensuring that the convenience of digital payments remains accessible for routine expenses.

MDR for Large Merchant Payments

4 percent will be applied. However, the framework includes a safeguard for very large payments by setting a maximum limit on the fee. For transactions involving 75000 rupees or more, the MDR will be capped at a maximum of 300 rupees per transaction. This collected fee won't go to a single entity but will be shared among various partners involved in the payment system, including the participating banks and the application providers who facilitate the transaction.

Special Rates for Essential Services

Certain essential and low-margin sectors have been granted specific relief under the new framework. For categories such as Railways, Telecom, Insurance, Fuel, and Agricultural inputs, a flat MDR of 5 rupees will be applied to transactions exceeding 2000 rupees. These sectors are vital to the economy and represent approximately 17 percent of the total volume and nearly 46 percent of the total value of UPI merchant transactions. By keeping the fee at a flat 5 rupees, the framework ensures that digital payments remain viable for these high-value essential services.

Reduced Fees for Capital Market Transactions

The MDR for payments related to the capital market has been kept Importantly lower to encourage retail participation in formal financial markets. 02 percent will be applicable. Similar to general transactions, this also has a maximum cap of 300 rupees. This move is intended to promote the use of digital payment methods for investments and trading activities.

Protection Against Hidden Charges for Customers

NPCI has explicitly stated that UPI app providers are prohibited from charging any platform fees or hidden fees to the customers. Banks have also been advised to ensure that merchants don't pass on the cost of the MDR directly to the consumers, while this means that users who use UPI for their payments won't have to pay any extra money in the name of MDR. The system is designed to ensure that the cost of maintaining the infrastructure is managed between the merchants and the payment service providers without burdening the end-user.

Creation of a New Infrastructure Fund

Under the new system, 5 percent of the total MDR collection will be allocated to a dedicated fund. This fund is designed to develop digital payment infrastructure specifically for small merchants. The primary objective of this fund is to enhance the acceptance and facility of UPI in smaller towns, rural areas, and semi-urban regions (Tier-3 markets). By reinvesting a portion of the fees back into the ecosystem, NPCI aims to strengthen the overall UPI network and ensure its growth in underserved parts of the country.