India to levy MDR on select UPI merchant payments above Rs 2,000 from Oct 15, 2026
Merchants will pay a 0.4% MDR on eligible person-to-merchant UPI transactions above Rs 2,000, capped at Rs 300. Small QR-code merchants collecting up to Rs 1 lakh monthly will remain exempt, while the Finance Ministry says roughly 96% of merchant transactions will be shielded.
What happened
India’s Finance Ministry expects the new UPI MDR to have limited impact on payment volumes, cash usage or inflation. Merchants, not consumers, will pay 0.4% on
Key facts
- 0.4% MDR on person-to-merchant UPI payments 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, capped at Rs 300
- Small merchants collecting up to Rs 1 lakh monthly via UPI QR codes exempt
- About 4% of total UPI transaction volume impacted
- About 96% of merchant transactions shielded
- 5% of total MDR collections to fund small-merchant UPI adoption
Why this matters
The split treatment could increase the strategic value of payment orchestration, merchant-acquiring and small-business UPI enablement assets that help retailers manage MDR exposure and capture subsidized adoption flows.
What to watch
- Final notification language defining eligible person-to-merchant transactions, merchant categories, transaction aggregation, refunds, and treatment of marketplace payments.
- Whether merchants are permitted to pass MDR directly to consumers or must absorb it under UPI, network, consumer-protection, and competition rules.
- UPI transaction-volume and value trends for merchant payments above Rs 2,000 after Oct. 15, compared with card and wallet share.
- Evidence of transaction splitting around Rs 2,000, including unusually higher volumes just below the threshold.
- Acquirer and PSP pricing announcements, especially whether MDR is fully passed through or partially offset by incentives.
- Large-retailer earnings commentary on payment costs, gross-margin effects, checkout conversion, and tender-mix changes.
- Finance Ministry disclosure of MDR collections and deployment of the 5% allocation for small-merchant UPI adoption.
- Any legal challenge or policy revision prompted by merchant associations, consumer groups, banks, or fintechs.
- Large retailers will segment UPI transaction data by ticket size, category, store format, and customer cohort to quantify post-threshold MDR exposure.
- Payment teams will renegotiate acquiring, gateway, and PSP contracts, seeking lower bundled processing rates and clearer treatment of refunds, chargebacks, and split payments.
- Merchants will test tender-steering tactics such as threshold-based offers, loyalty incentives, card EMI promotions, and account-to-account bank-transfer options.
- Marketplaces and aggregators will assess whether MDR is borne by the platform, seller, or consumer and may revise seller fee schedules for eligible UPI orders.
- Retail associations will lobby for broader exemptions, lower rates for essential goods, a higher threshold, or tax deductibility of MDR.
- Small merchants near the Rs 1 lakh monthly collection exemption threshold may manage settlement structures carefully to avoid unexpectedly losing exempt status.