India to levy 0.4% MDR on merchant UPI payments above ₹2,000 from Oct 15

Merchants will bear a 0.4% fee on UPI transactions above ₹2,000, while smaller merchants, lower-value payments and select essential sectors remain exempt or receive capped rates. Consumers cannot be charged the MDR.

— Source publishedWed, 16 Sept, 2026, 18:11 IST·First seen Wed, 16 Sept, 2026, 18:20 IST·Source YourStory · Capital

What happened

India will impose a 0.4% MDR on merchant UPI payments above Rs 2,000 from October 15, 2026. Merchants bear the fee, while small merchants and lower-value

Key facts

  • 0.4% MDR on merchant UPI transactions above Rs 2,000
  • Effective October 15, 2026
  • 96% of merchant transactions are below Rs 2,000
  • Small merchants receiving up to Rs 1 lakh monthly via UPI are exempt
  • MDR capped at Rs 300 for transactions of Rs 75,000 and above
  • Rs 5 flat MDR for eligible essential and thin-margin sectors
  • 0.02% MDR for mutual fund, securities, stockbroker and dealer payments, capped at Rs 300
  • UPI transactions exceeded 24,162 crore in FY2025-26
  • UPI transaction value reached about Rs 314 lakh crore in FY2025-26

Why this matters

Retailers and fintechs may pursue partnerships around lower-cost payment routing, merchant acquiring and value-added checkout services as MDR economics make high-ticket UPI acceptance more strategic.

What to watch

  • Final notification language defining merchant-size thresholds, exempt sectors, capped rates and whether the ₹2,000 test applies per transaction, invoice or cumulative purchase.
  • Clarification on GST treatment of MDR and whether acquirers, payment aggregators or banks add additional processing charges.
  • RBI, NPCI and payment-aggregator implementation guidance, including merchant-category-code treatment and settlement mechanics.
  • Large retailer responses: changes to UPI offers, checkout placement, payment-method messaging and high-ticket transaction conversion.
  • UPI ticket-size distribution after Oct. 15, especially clustering just below ₹2,000 and shifts to cards, EMI or bank transfers.
  • Industry association lobbying and potential legal or political pushback if the charge is seen as weakening UPI adoption.
  • Acquirer repricing for cards and alternative rails, which could determine whether UPI remains the cheapest acceptance option despite the MDR.
  • Map UPI transaction mix by ticket size, category, store format and merchant entity; quantify annualized MDR exposure above ₹2,000.
  • Review payment-routing economics versus card MDR, BNPL, bank transfer, wallet and proprietary financing options before changing checkout defaults.
  • Protect conversion by testing non-punitive steering methods, such as targeted offers on preferred payment methods rather than visible UPI surcharges.
  • Rework promotional funding rules with banks, brands and marketplaces so payment incentives offset the new cost on high-value baskets.
  • Train store and customer-service teams on the prohibition against passing MDR directly to consumers; audit POS messaging and invoices.
  • Monitor whether transaction splitting emerges in franchise, marketplace and high-ticket categories, and establish controls against practices that create regulatory or tax risk.

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