The Union government has introduced a merchant discount rate for selected high-value UPI payments, creating a new revenue mechanism for banks, payment-service providers and consumer payment applications while retaining the zero-charge framework for individuals and most small merchants.
Under the framework, person-to-person UPI transfers will remain free irrespective of value. Person-to-merchant transactions of up to ₹2,000 will also remain outside the MDR regime. Small merchants receiving up to ₹1 lakh a month through UPI QR codes under the person-to-person-merchant category will continue to pay no MDR, including when individual transactions exceed ₹2,000.
Specified merchant transactions above ₹2,000 will attract an MDR of 0.4%. The fee will be capped at ₹300 for transactions of ₹75,000 or more. The government said the proceeds will be distributed among banks, payment-service providers and UPI application operators rather than being collected by the government or the National Payments Corporation of India.
Different pricing will apply to sectors where margins or public-service considerations make the standard rate less appropriate. Payments above ₹2,000 for railways, telecommunications, insurance, fuel and agricultural inputs will carry a flat MDR of ₹5. Transactions involving mutual funds, securities, stockbrokers and dealers will attract a 0.02% rate, subject to the same ₹300 ceiling.
The MDR is payable within the merchant-payment ecosystem and is not intended to become a consumer charge. Banks have been advised to prevent merchants from passing it directly to customers, while UPI applications are prohibited from introducing platform fees or hidden charges. Existing daily transaction limits, generally ranging from ₹1 lakh to ₹5 lakh depending on the category, remain security and risk-management controls rather than fee thresholds.
Government estimates indicate that only about 4% of merchant transactions will attract the new charge. The other 96% are either below the ₹2,000 threshold or fall within the continued exemption for small merchants. Person-to-person payments, which represent about 70% of UPI transaction value, remain entirely outside the charging structure.
A dedicated small-merchant adoption fund will receive an amount equivalent to 5% of total MDR collections. The fund is intended to finance wider UPI acceptance and infrastructure expansion, particularly among small businesses and in rural and semi-urban markets.
The framework was introduced under the Payment and Settlement Systems Act following deliberations by the UPI Steering Committee. It changes the commercial structure of India’s digital-payments network by establishing a limited source of transaction revenue for participants that have largely operated UPI services without direct payment income, while preserving free access for individuals and the majority of merchant payments.
