India to levy 0.4% MDR on select UPI merchant payments above ₹2,000 from Oct 2026
Merchants will bear a 0.4% fee on specified person-to-merchant UPI payments above ₹2,000, capped at ₹300. Collections will be shared among banks, payment gateways and UPI apps, while small merchants and most transactions remain exempt.
What happened
India will introduce a 0.4% MDR on specified merchant UPI payments above ₹2,000 from 15 October 2026. Merchants bear the charge, while banks, gateways and apps
Key facts
- 0.4% MDR on specified person-to-merchant UPI transactions above ₹2,000
- MDR capped at ₹300 for transactions of ₹75,000 or more
- 40% of collections to customers' banks
- 30% to payment gateways
- 20% to UPI apps
- 10% to sponsoring banks
- 5% of total MDR collections allocated to a small-merchant adoption fund
- ₹5 flat fee for eligible railways, telecom, fuel and insurance transactions above threshold
- 0.02% MDR for certain capital-market transactions, capped at ₹300
- Small merchants receiving up to ₹1 lakh monthly through eligible UPI QR payments retain zero MDR
- Around 96% of person-to-merchant transactions expected to remain unaffected
Why this matters
Payments platforms with strong enterprise-merchant distribution may gain a new revenue pool, increasing the strategic value of acquiring or partnering with gateway, acquiring-bank and reconciliation capabilities.
What to watch
- Final government, NPCI, RBI and banking-industry guidance defining eligible merchant categories, merchant-size exemptions and whether transaction aggregation applies.
- Clarification of who sets and collects MDR, the exact share allocated to issuers, acquirers, gateways and UPI apps, and whether merchants can surcharge customers.
- UPI payment-volume and value trends for transactions just above ₹2,000 versus adjacent ticket bands after implementation.
- Changes in card, RuPay credit-on-UPI, BNPL and EMI adoption in electronics, jewellery, travel, furniture and premium retail.
- Merchant reports of checkout friction, transaction splitting, payment failures or consumer resistance to tender steering.
- Any political or merchant-association pushback that delays, narrows or reverses the regime before October 2026.
- Competitor announcements on absorbing fees, adding UPI surcharges, launching proprietary payment offers or changing minimum purchase thresholds.
- Segment payment data by ticket size, merchant category and store format to quantify the share of UPI payments above ₹2,000 likely to become chargeable.
- Model margin exposure under 0.4% MDR, including the ₹300 cap, and compare costs with card MDR, BNPL, EMI, account-to-account transfers and cash-on-delivery.
- Renegotiate acquiring and gateway contracts before October 2026, seeking blended pricing, volume rebates, routing flexibility and transparent MDR pass-through terms.
- Redesign checkout prompts for high-ticket purchases to preserve conversion while encouraging lower-cost tenders where commercially and legally appropriate.
- Review POS and reconciliation systems for split-payment controls, fee visibility, transaction aggregation and compliance with any anti-avoidance guidance.
- Use loyalty, installments, bundles and threshold-based promotions to protect large-basket conversion rather than applying visible UPI surcharges that could reduce customer trust.
- Monitor whether marketplace sellers, franchisees and small-format stores qualify for exemptions differently from larger corporate merchant entities.