India to levy 0.4% MDR on UPI merchant payments above Rs 2,000 from Oct. 15
The MDR will be paid by merchants and shared across the payments ecosystem, with small QR merchants collecting up to Rs 1 lakh a month exempt. Finance Minister Nirmala Sitharaman said the charge will not be passed on to consumers; 96% of merchant transactions are expected to remain shielded.
What happened
India will levy 0.4% MDR on merchant UPI payments above Rs 2,000 from October 15. The fee, paid by merchants and shared across payment ecosystem participants,
Key facts
- 0.4% MDR on person-to-merchant UPI transactions above Rs 2,000
- MDR capped at Rs 300 for transactions of Rs 75,000 or more
- Rs 5 flat fee for railways, telecom, fuel and insurance transactions above Rs 2,000
- 0.02% MDR for capital-markets transactions
- Small merchants collecting up to Rs 1 lakh monthly via UPI QR codes exempt
- 5% of MDR collections earmarked for small-merchant UPI promotion
- 96% of merchant transactions shielded
Why this matters
Payments providers should pursue merchant-acquiring, settlement and value-added-service partnerships as MDR monetization makes larger UPI transaction flows more commercially attractive.
What to watch
- Final notification defining eligible transaction types, merchant classification, exemption calculation period, and treatment of refunds, split payments, and online UPI.
- Clarification on enforcement of the ban on consumer pass-through and whether payment-method-specific discounts or convenience fees are permitted.
- Merchant association response, especially from modern retail, e-commerce, electronics, jewelry, fuel, travel, and hospitality sectors.
- Post-Oct. 15 changes in UPI payment share for baskets above Rs 2,000 versus card, cash, EMI, and bank-transfer volumes.
- Evidence that retailers raise ticket thresholds, reduce UPI promotions, or alter payment prompts at checkout.
- Government subsidy, compensation, fee cap, or revised MDR proposal if merchant acceptance growth slows.
- Map UPI acceptance exposure by merchant entity, store format, category, average ticket size, and monthly QR collections against the Rs 1 lakh exemption threshold.
- Reforecast payment acceptance costs assuming 0.4% MDR on eligible UPI volume; isolate effects on gross margin, contribution margin, and franchisee/store-level P&L.
- Review checkout and cashier scripts to ensure payment steering does not become an explicit consumer surcharge or violate implementation rules.
- Test compliant alternatives for high-ticket purchases: card EMI, BNPL, bank transfer, retailer financing, and loyalty incentives not explicitly conditioned on a UPI surcharge.
- Renegotiate acquiring and payment-aggregator contracts, seeking routing optimization, MDR caps, settlement benefits, and reporting transparency on ecosystem fee allocation.
- Monitor whether merchants restructure QR IDs or collections practices to remain within exemption thresholds; assess regulatory and reputational risk before adopting similar tactics.