UPI to introduce 0.4% MDR on select merchant payments above ₹2,000 from 15 October
The government says consumers will continue to use UPI free of charge. From 15 October 2026, select merchant transactions above ₹2,000 will attract a 0.4% MDR, capped at ₹300, while merchants earning up to ₹1 lakh a month via UPI QR remain exempt.
What happened
India will introduce 0.4% MDR on select UPI merchant transactions above Rs 2,000 from 15 October, paid by businesses rather than consumers. Small merchants and
Key facts
- 0.4% MDR on certain merchant UPI transactions above Rs 2,000
- MDR capped at Rs 300 per transaction
- Effective 15 October 2026
- No fee for merchants earning up to Rs 1 lakh monthly via UPI QR
- Rs 5 fixed fee for above-Rs 2,000 transactions in select essential services
- 0.02% MDR for mutual fund and securities payments, capped at Rs 300
- 95%+ merchant payments are below Rs 2,000
- 24.5 billion UPI transactions in August 2026
Why this matters
Payments, POS, and merchant-acquiring platforms may find partnership and bundling opportunities as eligible retailers seek tools to optimize higher-value UPI acceptance and transaction-cost visibility.
What to watch
- Final notification defining 'select merchant payments,' covered merchant categories, online versus offline applicability, and whether P2M QR transactions are uniformly included.
- Clarification of the ₹1 lakh monthly exemption calculation: merchant-level versus outlet-level, gross UPI receipts versus eligible receipts, and treatment of franchisees/marketplace sellers.
- NPCI, RBI and government guidance on merchant pass-through, surcharging, discounting and payment-method steering.
- Payment-aggregator announcements on revised MDR schedules, enterprise bundles, settlement fees and routing options ahead of 15 October 2026.
- UPI mix and average-ticket changes in high-value categories such as electronics, travel, jewellery, healthcare and large grocery baskets.
- Merchant association lobbying, legal challenges, subsidy announcements or extension of exemptions after initial rollout.
- Consumer checkout abandonment and tender-switching data during the first 30-90 days after implementation.
- Model gross-margin exposure by store, category, average UPI ticket, eligible transaction share and merchant QR revenue tier; separate in-store from online UPI flows.
- Audit payment contracts and checkout configurations to determine whether MDR can be absorbed, routed, disclosed or offset through compliant incentives.
- Test tender-steering offers for high-value baskets, such as card rewards, bank-transfer incentives, EMI/BNPL promotion or wallet-funded offers, without degrading UPI conversion.
- Negotiate with payment aggregators and acquiring banks for blended MDR, volume rebates, capped-fee treatment and improved settlement/reconciliation services.
- Prepare frontline and customer-service messaging emphasizing that consumer UPI remains free, while avoiding checkout friction or perceived surcharges.
- Monitor whether marketplaces, food delivery platforms and large-format retail peers absorb the cost or pass it through; their behavior will establish consumer expectations.