The National Payments Corporation of India (NPCI) has introduced a new Merchant Discount Rate (MDR) framework for specified UPI merchant transactions, effective October 15, 2026. The move changes how some large-value merchant payments are monetised while keeping most everyday UPI transactions free.

MDR is a fee associated with processing a merchant payment. Under the new framework, it is paid within the payment ecosystem rather than directly by the customer. The government has also said banks have been advised to ensure merchants do not pass the MDR on to customers.

The new charge will apply to specified person-to-merchant (P2M) transactions above ₹2,000. The standard MDR can be up to 0.4%, with a maximum charge of ₹300 for transactions of ₹75,000 or more.

Certain categories have different treatment. Capital-market transactions, for example, have a lower MDR rate, while specified sectors such as telecom, fuel, insurance and railways have separate caps.

Person-to-person (P2P) UPI payments will remain free regardless of transaction value. Merchant payments up to ₹2,000 will also remain free, while eligible small merchants covered by the zero-MDR framework will continue to be protected from the charge.

According to the Finance Ministry, around 96% of P2M transactions will remain unaffected by the new MDR framework.

The MDR revenue is distributed among participants in the UPI ecosystem, including issuer banks, acquiring banks and payment application providers. The framework is intended to provide a revenue stream for processing merchant payments while maintaining free access for consumers and small merchants.

The government has said the framework is aimed at supporting the long-term sustainability of India's rapidly expanding digital payments ecosystem.