NPCI Introduces 0.40% MDR on UPI Transactions Above Rs 2,000 Capped at Rs 300 to Bolster Payment Infrastructure

In a defining policy shift for India’s digital payments landscape, the National Payments Corporation of India (NPCI), in coordination with the Ministry of Finance, has notified a revised commercial framework establishing a 0.40% Merchant Discount Rate (MDR) on select Person-to-Merchant (P2M) Unified Payments Interface (UPI) transactions exceeding ₹2,000, effective October 15, 2026.

The move introduces a tiered pricing matrix designed to establish a commercially viable model for acquiring banks, payment aggregators, and technology service providers, while leaving everyday retail transactions insulated from fees.

The Fee Matrix and Capping Mechanism

Under the framework detailed by the NPCI, small-ticket transactions will face no levy, whereas larger transaction volumes will attract a proportionate processing fee paid exclusively by the merchant:

• Up to ₹2,000: 0% MDR (₹0 payable by merchant)
• ₹3,000: 0.40% MDR (₹12 payable)
• ₹10,000: 0.40% MDR (₹40 payable)
• ₹20,000: 0.40% MDR (₹80 payable)
• ₹30,000: 0.40% MDR (₹120 payable)
• ₹40,000: 0.40% MDR (₹160 payable)
• ₹50,000: 0.40% MDR (₹200 payable)
• ₹60,000: 0.40% MDR (₹240 payable)
• ₹70,000: 0.40% MDR (₹280 payable)
• Above ₹75,000: Fixed cap of ₹300 per transaction (covering high-value transactions such as ₹1,00,000 and ₹5,00,000)

Without the cap, a ₹1,00,000 payment would have incurred ₹400; under the ceiling, merchant liability is fixed at ₹300.

Protection for Consumers and Small Vendors

The regulatory circular strictly maintains that MDR is an institutional cost borne solely by the merchant and cannot be passed on to customers as a surcharge or convenience fee. Retail users will continue to make UPI payments free of charge across all platforms.

Similarly, Person-to-Person (P2P) transfers—such as remittances between friends and family—remain entirely exempt irrespective of the transacted amount. In addition, small vendors classified under the Person-to-Person-Merchant (P2PM) framework receiving up to ₹1,00,000 per month via static or dynamic QR codes remain fully protected with zero MDR. Transactions below the ₹2,000 mark account for more than 95% of all P2M volumes in India, ensuring that daily street-level commerce is untouched.

Concessional Tiers for Strategic Sectors

To prevent cost escalations in essential services and regulated markets, specific industry carve-outs have been implemented:

• Public Utilities and Thin-Margin Industries: Indian Railways, telecommunications, insurance, retail fuel, and agricultural input providers will not incur the standard 0.40% rate; instead, transactions above ₹2,000 in these segments will carry a flat MDR of ₹5 per transaction.
• Capital Markets: Inflows directed towards mutual funds, securities brokers, and clearing dealers will attract a nominal MDR of 0.02%, subject to the overall ₹300 cap.

Industry and Market Implications

Since the zero-MDR mandate was introduced in January 2020, Indian banks and non-bank payment service providers (PSPs) have shouldered the cost of maintaining high-frequency transaction switches, server capacities, and fraud-monitoring protocols without a direct revenue stream, relying primarily on government subsidy allocations.

The restoration of MDR on higher-value P2M flows provides financial sustainability for ecosystem participants, including major merchant acquirers and listed fintech players. The collected proceeds will be shared among issuing banks, acquiring banks, and application providers to fund server reliability, cybersecurity enhancements, dispute-resolution infrastructure, and fraud mitigation frameworks as UPI payment throughput continues to expand.

Tags: NPCI UPI Digital Payments Reserve Bank of India Ministry of Finance FinTech