1 day ago
UPI MDR Begins October 15, Testing Merchant Payment Choices
Starting October 15, some shops will have to pay a small fee when customers use UPI for purchases above Rs 2,000.
The fee is normally 0.4% of the payment, but it cannot exceed Rs 300 for payments of Rs 75,000 or more.
Customers are not supposed to pay this fee separately.
Payments between people will remain free, and some small merchants will stay exempt.
The government says the money can help pay for UPI’s technology, security and customer service.
Some merchants may prefer cash or cards for expensive purchases because those methods may cost them less or offer other benefits.
Experts do not expect most people to stop using UPI immediately because it is convenient and still free for them.
The actual effect will become clearer after the new rule starts.
A 0.4% Merchant Discount Rate will apply to specified UPI merchant payments above Rs 2,000 from October 15.
The MDR is charged to merchants, while consumers and person-to-person UPI users are not supposed to pay transaction fees.
Transactions of Rs 75,000 or more will have the MDR capped at Rs 300, and eligible small P2PM merchants remain exempt.
Experts expect limited immediate migration from UPI, although merchants may encourage cash, cards or other payment methods for high-value purchases.
The Supreme Court has not stayed the framework but has sought responses from the Centre, RBI and NPCI to a legal challenge.
- Who
- The government, UPI merchants, consumers, payment companies, the Reserve Bank of India, the National Payments Corporation of India and the Supreme Court of India are involved.
- What
- A 0.4% Merchant Discount Rate is being introduced for specified person-to-merchant UPI transactions above Rs 2,000, with exemptions and a Rs 300 cap for larger payments.
- Where
- The change applies across India’s UPI merchant-payment ecosystem.
- When
- The framework is scheduled to take effect on October 15; the Supreme Court issued notices on the legal challenge on September 28.
- Why
- The government says a revenue stream is needed to help fund UPI infrastructure, fraud prevention, cybersecurity, innovation and customer service.
Sustainability and Revenue
Merchant Costs and Payment Choice
Need for MDR
Sustainability and Revenue
The government and supporting experts say a predictable merchant revenue stream can fund UPI infrastructure, cybersecurity, fraud prevention, innovation and customer service.
Merchant Costs and Payment Choice
Critics and affected merchants may view the fee as an added operating cost, particularly for small businesses with thin margins.
Effect on consumer behavior
Sustainability and Revenue
Because customers do not pay the MDR directly and most UPI payments are below Rs 2,000, experts expect little immediate movement away from UPI.
Merchant Costs and Payment Choice
Merchants may encourage cash, cards or other payment methods, offer cash discounts, refuse large UPI payments or otherwise influence customers’ choices.
Legal and enforcement concerns
Sustainability and Revenue
The framework prohibits merchants from passing the MDR to customers as a surcharge and has not been stayed by the Supreme Court.
Merchant Costs and Payment Choice
Enforcement may be difficult if merchants quietly embed costs in prices, steer customers toward other methods or attempt to split transactions to avoid the threshold.
Key facts
- Standard MDR
- 0.4% for specified person-to-merchant UPI transactions above Rs 2,000.
- Large-payment cap
- The MDR is capped at Rs 300 for transactions of Rs 75,000 and above.
- Consumer charge
- Customers are not supposed to pay the MDR as a separate UPI surcharge.
- Small-merchant exemption
- Eligible P2PM merchants receiving up to Rs 1 lakh monthly through UPI QR codes into bank accounts remain at zero MDR.
- Special categories
- Fuel, insurance, telecom and railways have a concessional flat MDR of Rs 5 for specified transactions above Rs 2,000.
- UPI operating cost
- The Finance Ministry’s FAQ cites industry estimates of about Rs 20,000 crore annually to maintain UPI operations.
- August transaction volume
- NPCI data cited in the article shows 24,508.96 million UPI transactions worth Rs 29.82 lakh crore in August 2026.
Quotes
Vaibhav Kakkar
Senior Partner at Saraf and Partners
“I do not expect any meaningful migration away from UPI, because the consumer pays nothing extra and so has no reason to change. It is important to note that the 0.4% MDR is a merchant-side charge, and the framework expressly prohibits apps from levying platform fees and merchants from surcharging customers.”
financialexpress.com
“Legally, merchants cannot pass the MDR on as a surcharge. However, the rule cannot prevent a quiet embedding of the cost in prices, a ‘cash discount’, or informal refusals to accept UPI above a certain amount.”
financialexpress.com
Sources
Related news
UPI MDR Begins October 15, Merchants Face Charges, Customers Don’t
UPI Sets 0.4% MDR on High-Value Merchant Payments
UPI MDR Will Target Specified Merchant Payments Above ₹2,000
New UPI MDR Rules Keep Consumers Free, Charge Eligible Merchants
India Plans Daily Monitoring of New UPI Merchant Fee
Government Defends UPI Merchant Fee, Says Consumers Won’t Pay
Government Keeps Small Savings Rates Unchanged For October-December Quarter
Dearness Allowance Is Part of CTC and Fully Taxable
Maharashtra Approves ₹1.32 Crore For Four Lokayukta Toyota Vehicles
PPF Rate Holds at 7.1% as October Review Nears
