UPI MDR explained: Flat ₹5, 0.40% or 0.02%? Know what applies to merchants, key sectors and capital markets

UPI MDR rules are set to apply from 15 October 2026, with different charges based on transaction value, merchant category, and payment type. Here’s a look at how the framework works and what merchants and consumers need to know.

The UPI Merchant Discount Rate (MDR) framework will take effect from 15 October 2026, with a 0.40% MDR applying to Person-to-Merchant (P2M) UPI transactions above ₹2,000 for standard merchants.

However, the rate varies based on the transaction value, merchant category, and type of payment.

According to a Motilal Oswal Financial Services’ Morning India report released on Thursday, UPI processed ₹29.82 lakh crore worth of transactions in August 2026. P2P transactions accounted for 30% of the total value, while P2M transactions made up the remaining 70%.

MDR is a fee charged for accepting digital payments and is paid by the merchant, not directly by the consumer. Here's what you need to know.

P2P or person-to-person transactions are payments made between individuals, such as sending money to a family member or friend. P2M, or person-to-merchant, transactions are payments made by a customer to a shop, service provider, or other merchant.

Source: Motilal Oswal Financial Services, Morning India report

P2P UPI transactions have zero MDR irrespective of the transaction amount. For standard P2M transactions, payments up to ₹2,000 also have zero MDR, while higher-value transactions will attract MDR of 0.40%.

However, there is a further threshold at ₹75,000. Transactions between above ₹2,000 and below ₹75,000 have no separate cap, while transactions of ₹75,000 or more are subject to a maximum MDR of ₹300.

In simple terms, the 0.40% rate does not mean the MDR can keep increasing indefinitely for high-value payments. Once a transaction reaches ₹75,000, the ₹300 cap applies.

Certain sectors, including railways, telecom, insurance, and fuel, will attract a flat MDR of ₹5 on transactions above ₹2,000.

For example, on a ₹10,000 payment, a standard P2M transaction, such as a payment at a shop, would attract ₹40 in MDR at 0.40%. In contrast, payments in specified special-rate sectors would attract a flat MDR of ₹5, irrespective of the transaction amount.

Capital market-related UPI payments have a separate 0.02% MDR, subject to a maximum cap of ₹300. This covers mutual fund payments, securities transactions, stockbroker payments, and dealer payments.

At ₹10,000, 0.02% works out to ₹2, while at ₹1 lakh it works out to ₹20. The ₹300 cap means the MDR cannot exceed ₹300 even when the transaction value is much higher.

The P2PM (Person-to-Person-Merchant) framework is designed to protect micro and small merchants from MDR. It is a specialised category created by NPCI to support small vendors who receive UPI payments directly into their personal bank accounts.

The ₹2,000 transaction threshold for standard P2M merchants does not apply in the same way to eligible P2PM merchants.

So, if you make a payment of more than ₹2,000 to an eligible small merchant through a UPI QR, the merchant can still receive it without MDR.

The merchant moves out of the framework if monthly inward UPI receipts exceed ₹1 lakh for three consecutive months.

Disclaimer: This is for informational purposes only. Please visit the official website for the latest updates.

Sheetal Goel is a Content Producer at Livemint, where she covers corporate developments, personal finance, business trends, markets, and SEBI-related updates. She focuses on simplifying complex financial concepts and presenting them in a clear, reader-friendly manner, thereby helping audiences better understand investment trends, personal finance, and market developments. Her writing focuses on making finance more accessible to everyday readers while maintaining clarity, accuracy, and relevance. <br><br> She holds a degree in Economics (Hons.) along with an MBA in Finance, which has helped her develop a strong foundation in financial analysis, market understanding, and business reporting. Before joining journalism, she worked with finance and broking firms, where she closely followed market developments, investment strategies, and evolving industry trends. This practical exposure strengthened her understanding of financial markets. She has also written content across multiple formats and platforms, including YouTube, LinkedIn, and Instagram. <br><br> Over time, she has developed expertise in covering market-linked stories, investor-focused topics, and regulatory updates in a simplified yet informative style. She also enjoys reading and listening to Hindi poetry, reflecting her appreciation for literature and creative expression beyond the world of markets and numbers.