India’s UPI payment ecosystem is set for a significant change from October 15, 2026, with the introduction of a Merchant Discount Rate (MDR) on selected high-value merchant transactions. However, not every UPI payment above Rs 2,000 will attract the same charge.
Under the new framework, transactions above Rs 2,000 in five specific categories will attract a flat Rs 5 MDR instead of the standard percentage-based charge.
Which Five Categories Will Attract Rs 5 MDR?
The new framework identifies five categories where UPI merchant transactions above Rs 2,000 will attract a flat Rs 5 MDR.
These categories are:
- Railways
- Telecommunications
- Insurance
- Fuel
- Agricultural inputs
The decision creates a separate pricing structure for these sectors, where merchants will pay a fixed Rs 5 instead of the standard MDR applicable to other eligible transactions.
For example, if a customer makes a Rs 10,000 eligible payment for a railway service through UPI, the merchant-side MDR would be Rs 5 rather than Rs 40 under a 0.4% MDR.
Customers Will Not Directly Pay the MDR
One of the most important aspects of the new system is that the MDR is a merchant-side charge.
Customers making UPI payments will not be directly charged the Rs 5 MDR. Banks have also been advised to ensure that merchants do not pass the MDR cost on to customers.
This means a customer making an eligible Rs 3,000 payment should continue to pay Rs 3,000, while the applicable MDR is handled within the merchant payment ecosystem.
What About Other UPI Payments Above Rs 2,000?
For other eligible person-to-merchant UPI transactions above Rs 2,000, the standard MDR will be 0.4%.
The charge will be capped at Rs 300 for transactions of Rs 75,000 or more. Transactions of Rs 2,000 or less will continue without MDR.
Person-to-person UPI transfers will also remain free, regardless of the amount involved. Therefore, transferring Rs 5,000 to a friend or family member will not attract the new MDR.
Most UPI Transactions Will Remain Unaffected
The new framework is expected to have an impact on only a relatively small portion of UPI transactions.
According to the government, around 96% of merchant transactions will remain unaffected, with the new MDR applying to approximately 4% of transactions.
Small merchants receiving up to Rs 1 lakh per month through UPI QR codes under the Person-to-Person-Merchant category will also continue to receive zero MDR on their transactions.
What the New UPI Rules Mean
The new MDR framework introduces a cost for certain merchant transactions while keeping direct charges away from consumers.
For users, the key distinction is between merchant payments and person-to-person transfers. Payments to friends and family will remain free, while eligible merchant transactions above Rs 2,000 will follow the revised MDR structure from October 15, 2026.
The introduction of the flat Rs 5 charge for railways, telecommunications, insurance, fuel and agricultural inputs also creates a different cost structure for these sectors compared with other eligible merchant transactions.
