NPCI introduces a 0.4% MDR on UPI merchant payments above Rs 2,000 from October 15

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MDR rules for UPI payments

Highlights

NPCI will introduce a 0.4% MDR on UPI P2M payments above Rs 2,000 from October 15, with the cost borne solely by merchants.
For selected sectors including railways, telecom, insurance, and fuel, a flat MDR of Rs 5 will apply to transactions above Rs 2,000, or a 0.02% MDR on capital-market payments, capped at Rs 300.
UPI transaction value reached Rs 29.8 lakh crore in August; NPCI will contribute 5% of MDR collections to a fund for small merchants, while annual costs are estimated at Rs 20,000 crore.

This article was translated from the original. Read the original version by our correspondent here.

New fee structure and scope of application

According to Forbes India, the National Payments Corporation of India (NPCI) clarified on Tuesday that a 0.4% MDR applies to person-to-merchant (P2M) UPI transactions above Rs 2,000, with merchants bearing the cost and prohibited from passing it on to customers. Consumers paying through UPI apps pay only the listed price, with no separate transaction or platform fee.

NPCI says the MDR is capped at Rs 300 for payments of Rs 75,000 and above. UPI transactions of Rs 2,000 or less account for more than 95% of the P2M category, while person-to-person (P2P) payments sent to friends, family, or personal contacts carry no charge.

Concessional rates apply to selected sectors. In sectors such as railways, telecom, insurance, and fuel, a flat MDR of Rs 5 applies to transactions above Rs 2,000, while capital-market payments made to mutual funds, stockbrokers, and securities dealers are subject to a 0.02% MDR, capped at Rs 300. The notification also clarifies that MDR is distributed among participants in the payments ecosystem, including banks and payment application providers.

Industry costs, policy context, and market impact

NPCI further adds that a fund will be established to encourage adoption among small merchants, with around 5% of total MDR collections contributed to it. UPI transaction value reached Rs 29.8 lakh crore in August, underscoring the scale and importance of the framework.

The clarification comes a day after the Finance Ministry’s notification identifying UPI transactions up to Rs 2,000 as a fee-protected category under Section 10A of the Payment and Settlement Systems Act. In August, Finance Minister Nirmala Sitharaman said consumers would not have to pay any fees on UPI transactions, clearing up confusion over who bears the MDR burden.

According to industry estimates, the annual cost of running UPI stands at around Rs 20,000 crore, shared by banks, NPCI, and payment service providers. PayU CEO Anirban Mukherjee previously said that continued investment is needed in payment infrastructure, merchant services, security, compliance, and fraud prevention, while Tonetag founder and CEO Kumar Abhishek previously said that a large share of major merchants already accept cards and pay processing costs of more than 1%; MDR on credit cards ranges from 1% to 3%, while for debit cards it ranges from 0.4% to 0.9%.

Our previous report discussed the central government’s fiscal trends in the first four months of FY2027, which showed a slight easing in the fiscal deficit and a sharp decline in the revenue deficit. The article also noted that capital expenditure growth of around 30% could limit the impact of this improvement, while pressure on tax targets—particularly personal income tax and excise duty—may persist in the months ahead.

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