From 15 October 2026, a Merchant Discount Rate applies to some UPI payments for the first time. The Department of Financial Services published the rules on 15 September 2026 as a 10-page set of 42 Frequently Asked Questions across 6 sections, alongside a PIB release the same evening. The framework went live 8 days ago.
Almost everything written about it since has compressed to a headline. The actual document is more specific than the headline and, in two places, less specific. What follows is the whole rate card, the arithmetic the documents leave for you to do, and the parts that are still undefined. Our copy of the FAQ is linked at the end.
The one-line answer, if that is all you came for
If you are paying, nothing changes. Not for person-to-person transfers of any size, not for anything you buy up to Rs 2,000, not for anything you buy from a small shop. MDR is a fee a merchant's bank keeps out of the merchant's money. It is not a tax, it is not collected by the government or by NPCI, and a merchant is forbidden from adding it to your bill.
The government's own estimate is that MDR touches about 4% of merchant transactions. The other 96% are either below Rs 2,000 or belong to a small merchant who pays nothing. Person-to-person transfers, which are 70% of everything moved on UPI by value, sit outside the framework entirely.
The full rate card
The FAQ scatters the rates across six sections and repeats some of them three times. Collected in one place, with the question number each rate comes from:
| What you are paying for | MDR the merchant pays | FAQ |
|---|---|---|
| Person-to-person (P2P), any amount | Nil — no transaction fee, no platform fee, no charge of any kind | Q16, Q17 |
| Any merchant payment up to Rs 2,000 | Nil | Q2, Q18 |
| Small merchants in the P2PM category | Nil, whatever the amount | Q23, Q24 |
| General merchants (P2M) above Rs 2,000 | 0.4%, capped at Rs 300 from Rs 75,000 upward | Q3, Q31, Q32 |
| Railways, telecom, insurance, fuel and similar | Flat Rs 5 per transaction | Q33, Q39, Q40 |
| Electricity, water and piped natural gas bills | Flat Rs 5 per transaction | Q41 |
| Mutual funds, securities, stockbrokers, dealers | 0.02%, capped at Rs 300 | Q37, Q38 |
| School, college and entrance-exam fees | A flat or capped rate — the FAQ never names the number | Q42 |
| UPI AutoPay and UPI Mandates | No prescribed MDR | Q22 |
| RuPay credit card on UPI, pre-sanctioned credit lines | Outside this framework — credit card rules apply instead | Q36 |
Three of those rows deserve more than a line each.
The Rs 300 cap is where the percentage stops, not a discount off it
The documents say 0.4% applies above Rs 2,000 and that the fee is capped at Rs 300 for transactions of Rs 75,000 and above. They do not point out that these two numbers were chosen to meet: 0.4% of Rs 75,000 is Rs 300, to the rupee. So there is no jump, no cliff and no sudden saving at Rs 75,000. The curve rises at 0.4% and then flattens the instant it reaches Rs 300.
What that does mean is that the effective rate collapses on anything large:
| Amount paid to merchant | MDR | Effective rate | Why |
|---|---|---|---|
| Rs 2,000 | Rs 0 | 0% | At the threshold — MDR applies only above it |
| Rs 3,000 | Rs 12 | 0.4% | 0.4% |
| Rs 50,000 | Rs 200 | 0.4% | 0.4% |
| Rs 75,000 | Rs 300 | 0.4% | 0.4% and the cap, which meet exactly here |
| Rs 1 lakh | Rs 300 | 0.3% | Cap — 0.4% would have been Rs 400 |
| Rs 5 lakh | Rs 300 | 0.06% | Cap — 0.4% would have been Rs 2,000 |
The first three rows are the FAQ's own worked examples in Q35. The last three are the same rule carried further, which is where the design becomes obvious: a Rs 5 lakh payment costs the merchant the same Rs 300 as a Rs 75,000 one.
Flat Rs 5 in the thin-margin sectors is always the cheaper deal
For railways, telecom, insurance, fuel and a handful of other categories the fee is a flat Rs 5 per transaction above Rs 2,000, instead of 0.4%. This is not a rate that might sometimes be worse than the percentage. Because MDR only begins above Rs 2,000, and 0.4% of Rs 2,000 is already Rs 8, the flat Rs 5 undercuts the percentage at every amount it can ever apply to. On a Rs 50,000 insurance premium it is Rs 5 against Rs 200 — an effective rate of about 0.01%.
The two documents do not give the same list of sectors. The FAQ says "railways, telecom services, insurance, and fuel, among others" and separately adds electricity, municipal water and piped natural gas. The PIB release lists "railways, telecommunications, insurance, fuel and agricultural inputs". Agricultural inputs appear only in the release. Treat the FAQ's "among others" as doing real work; the full notified list is with NPCI and is not public.
Mutual funds and shares are charged at a twentieth of the general rate
Capital-market payments — mutual fund purchases, equity and debt buying, payments to SEBI-registered brokers and dealers, broker wallet top-ups — attract 0.02%, capped at Rs 300. That is one-twentieth of 0.4%. On a Rs 10,000 SIP instalment it works out to Rs 2. The cap does not start biting until Rs 15 lakh, so in practice almost every retail investor sits on the percentage, not the cap.
Note also Q22: UPI AutoPay and UPI Mandates carry no prescribed MDR at all. A monthly SIP set up as an AutoPay mandate is therefore in a different position from the same SIP paid by hand each month. The FAQ states this flatly and does not elaborate, and it is the single most under-reported line in the document.
Four things the framework forbids outright
These are written as prohibitions, not as reassurances, which matters if a merchant or an app ever tries it on:
| Not allowed | What the FAQ says | FAQ |
|---|---|---|
| A merchant adding the MDR to your bill | Merchants onboarded under the framework cannot pass MDR on to customers. Banks have been told to enforce this. | Q34 |
| A UPI app charging you a platform fee | Apps are "explicitly restricted" from levying a platform fee or any other charge on a UPI payment. | Q17 |
| A monthly free-transaction quota | There are no monthly quotas, volume limits or tiered caps on free transactions for individuals. | Q20 |
| Treating your daily limit as a charging tier | The Rs 1 lakh to Rs 5 lakh daily limits are risk controls, not fee thresholds. | Q20 |
If you are the small merchant, read this part twice
Zero MDR for small merchants is not a permanent property of being small. It is a property of your account category, and the category can change without you doing anything.
The protected category is P2PM — Person-to-Person-Merchant — created by NPCI for vendors who take payments into their own personal bank account through a UPI QR code. While you are in it, you pay nothing, on every transaction, whatever the amount. A payment above Rs 2,000 does not create a charge; the FAQ is explicit that applicability follows the account category, not the individual transaction. GST registration is not required and is not relevant to this.
The ceiling is Rs 1 lakh of inward UPI credit per month. The mechanism for leaving is in Q29, and it is the most actionable sentence in the document: acquiring banks run a transaction-velocity check, and a merchant whose inward UPI credit exceeds Rs 1 lakh a month for 3 consecutive months is "formally transitioned" to P2M. One good month does not move you. Three in a row does — and from then on, payments above Rs 2,000 cost you 0.4%.
You do not have to change your QR code, replace a soundbox, re-register or visit a branch. Existing QR infrastructure keeps working either way.
The small-merchant fund, and the date to watch
A dedicated fund is being set up to push UPI acceptance further into small retail. The PIB release puts a number on it that the FAQ does not: 5% of total MDR collections will go into it. The money is meant for digital-payment infrastructure in tier 3 to 6 centres including the North-East, Jammu & Kashmir and Ladakh, for merchant onboarding incentives paid to acquiring banks and payment aggregators, and for beneficiaries of notified central schemes such as PM SVANidhi and PM Vishwakarma in tier 1 and 2 centres as well.
The fund does not exist yet in operational terms. The FAQ says the detailed framework will be finalised in consultation with the Reserve Bank of India "within the next three months", counted from 15 September 2026 — so around the middle of December 2026. Capital allocation criteria, regional priorities and the merchant incentive structure are all still to be written.
Why the government says it did this
UPI handled 2,451 crore transactions worth Rs 29.9 lakh crore in August 2026 alone, and is live in 11 foreign countries. The FAQ puts industry's cost of running all of that — servers, bandwidth, fraud systems, bank technical support — at around Rs 20,000 crore a year, and argues that annual government incentive payments were only ever bridge funding, not a permanent subsidy.
There is a competition argument too, and it is a candid one: under zero MDR, the FAQ says, "only well-capitalised tech conglomerates can afford to sustain long-term operational losses." A revenue model, on this reading, is what lets a smaller payments company exist at all.
For scale, the FAQ sets 0.4% against the alternatives it is competing with — credit cards at 1.5% to 2.5%, debit cards capped at 0.90%.
The legal basis
The framework is introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI and Services Steering Committee, which is headed by NPCI and which decides the operational parameters, the fee distribution model and the category caps. The PIB release also places it alongside a recommendation of the Standing Committee on Finance in its 32nd Report, which had pressed for a viable revenue model for the payments system.
No Gazette notification was issued, and none was needed: this runs through NPCI's circular machinery under the 2007 Act rather than through subordinate legislation.
What is still not public
Being straight about the gaps, because several of them matter:
- NPCI's operational circular. This is the instrument that actually implements the framework, and it carries the full notified sector list and the fee-sharing split between acquiring bank, issuer, payment service provider and app. NPCI's website is not publicly accessible, so we have not quoted a circular number we cannot see.
- The education rate. Q42 says school, university and entrance-exam fee collections get "flat-fee structures or capped processing rates" above Rs 2,000. It never says which, or how much. Every other concessional sector in the document gets a number. Education does not.
- The fee-sharing split. We know MDR is "distributed among payment ecosystem participants". We do not know in what proportions.
- The small-merchant fund rules. Due with RBI by about mid-December 2026, as above.
- Credit on UPI. Q36 removes RuPay credit cards on UPI and pre-sanctioned credit lines from this framework and sends them to "standard credit card guidelines" — which, as the same FAQ notes, run at 1.5% to 2.5%. If you pay a large bill with a credit card linked to UPI rather than from your bank account, you are in a far more expensive regime, and nothing in this document changes that.
Insurance premiums are one of the categories that got the concessional flat Rs 5 here. If you are looking at how government is reshaping insurance and pension products more generally, see our breakdown of NPS Swasthya, where PFRDA has made an NPS corpus pay hospital bills, and of the Pradhan Mantri Samajik Sahayata Yojana, the renamed NSAP that carries the old-age, widow and disability pensions.
Where to check, and what to ignore
Q21 is unusually direct about this. The government asks you to rely on the Ministry of Finance, RBI, NPCI or PIB, and specifically asks you not to forward unverified messages about UPI charges. Social media rumours on this subject have been wrong in both directions — some claiming consumers would be charged, others that nothing had changed at all. Neither is right. Merchants above Rs 2,000 now pay; you do not.