Merchants will be charged 0.4% for UPI transactions above ₹2,000; small sellers exempt

The National Payments Corporation of India (NPCI) has introduced a fee of 0.4% that most merchants will have to pay to banks and payment processors for UPI payments they receive above ₹2,000 per transaction, it said in a circular issued on Tuesday (15 Sep 2026).

The charge, or Merchant Discount Rate (MDR), will not apply to UPI transactions between people and UPI transactions to small sellers. All merchant-to-merchant transactions up to ₹2,000 made on UPI or through RuPay debit cards will also be exempted. In some sectors such as railways, telecom, insurance, fuel and agricultural inputs, transactions above ₹2,000 will attract a flat MDR of ₹5.

The new structure will take effect on October 15, 2026.

“There will be no charges for people-to-people (P2P) transactions, irrespective of the value of the transaction,” the finance ministry said in a release, adding that “P2P transactions account for 37% of total UPI transactions in volume terms and 70% in value terms.

“The charges will be applicable only for person-to-merchant (P2M) transactions exceeding ₹2,000,” it said.

The government further said that banks have been advised to ensure that merchants do not pass on MDR charges for UPI payments to customers, which was a key fear when the issue was discussed in public.

According to the release, the 0.4% MDR fee will be “shared among payment ecosystem partners, including banks and app providers.”

It also states that for transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.

According to the notification, small merchants who receive up to ₹100,000 per month through UPI QR codes under the Personal Merchant (P2PM) classification will not pay any MDR for any UPI transactions they receive.

“This bridges the informal setup of street vendors with formal accounts for merchant acquisitions and promotes digital adoption in the unorganized sector,” the government said.

Different rules for different industries

However, transactions involving certain core sectors attract a flat MDR rather than a percentage.

“Railways, telecom, insurance, fuel, agricultural inputs etc will pay a flat MDR of ₹5 per transaction above ₹2,000,” the ministry said. “This flat-rate model ensures cost stability in critical public services and low-margin industries.”

Further, the government said payments to “mutual funds, securities, stockbrokers and dealers” will attract MDR of 0.02%, capped at ₹300.

This reduced rate, she explained, was aimed at encouraging the participation of retailers in formal financial markets.

“Separate”

“The new MDR framework will make UPI self-sustaining, provide incentives for further expansion in rural and semi-urban areas and maintain competitiveness while ensuring that the vast majority of payments remain free,” the finance ministry said.

It added that its data analysis shows that the introduction of MDR will impact only 4% of business transactions as most transactions fall below the ₹2,000 threshold or qualify under the P2PM framework with zero MDR.

Further, a dedicated fund will be set up to promote the use of UPI by small merchants using 5% of the total MDR collections.

“This initiative will expand the adoption of UPI, encourage sustained use and accelerate the inclusion of small businesses in India’s digital payments ecosystem,” the government said.

Published – 15 Sep 2026 19:56 IST