India’s digital payment ecosystem is set for a significant change from October 15, 2026, with a new Merchant Discount Rate (MDR) being introduced on specified UPI payments made to merchants.
Under the new framework, a 0.4% MDR will apply to eligible person-to-merchant (P2M) UPI transactions above ₹2,000. The charge is applicable within the merchant payment ecosystem rather than being a direct fee collected from consumers. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.
For example, an eligible ₹10,000 UPI merchant payment would attract an MDR of ₹40. The image circulating on social media uses this example to explain how the new system could work.
Importantly, person-to-person (P2P) UPI transfers will remain free, regardless of the amount transferred. Payments to merchants of up to ₹2,000 will also remain outside the MDR framework. The government says around 96% of P2M transactions will remain unaffected under the new structure.
The framework also provides special treatment for several essential and thin-margin sectors. UPI payments above ₹2,000 involving areas such as railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat ₹5 MDR instead of the standard 0.4% rate.
The Finance Ministry has clarified that customers will not be required to pay the MDR. The charge is intended to be borne within the merchant-side payment ecosystem, with the revenue distributed among participating banks, payment service providers and UPI application providers.
The revised system marks a change from the long-standing zero-MDR structure for UPI merchant payments. Authorities have said the new framework is intended to support the long-term sustainability, infrastructure, cybersecurity and expansion of the UPI ecosystem.
The development is likely to receive close attention from merchants and digital-payment businesses as they prepare their payment systems for the October 15 implementation date.