Soon Unified Payment Interface (UPI) transactions made by merchants will attract the Merchant Discount Rate (MDR) on select transactions. The MDR will not be the same for every merchant, as the applicable rate will depend on the industry or the category in which the merchant operates. The new MDR on select UPI transactions will become applicable from October 15, 2026.

Payments up to Rs 2,000 and transactions under the zero-MDR framework for small traders would remain free. As a result, about 96% of all P2M transactions will remain unaffected. The MDR will only apply to specific merchant transactions above Rs 2,000.

For transactions above Rs 2,000 in the specified sectors, the MDR will be capped at a flat Rs 5 per transaction. This is applicable to sectors including railways, telecommunications, insurance, fuel and agricultural inputs.

For example, if a customer makes a UPI payment of Rs 3,000 for a railway ticket, the applicable MDR will be Rs 5.

For example, a passenger books a railway ticket worth Rs 3,500 and pays through the UPI.

Since the transaction is above Rs 2,000 and falls under the specified railway category, the MDR applicable to the merchant will be Rs 5.

The customer pays Rs 3,500 for the ticket. The Rs 5 MDR is a payment-processing charge applicable to the merchant transaction; it is not an additional Rs 5 that should be collected from the customer.

Similarly, if a customer pays Rs 5,000 towards an insurance premium through the UPI, the MDR applicable to the transaction will be Rs 5.

The charge remains Rs 5 even when the transaction value is higher.

A nominal MDR of 0.4% will apply only to Person-to-Merchant (P2M) transactions above Rs 2,000. The MDR will be shared among payment ecosystem participants, including banks, payment service providers and UPI application providers. For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction.

Banks have been advised to ensure that merchants do not pass MDR charges on to customers. UPI application providers are expressly prohibited from imposing platform fees or hidden charges.

Individuals will continue to have unlimited free usage, with no monthly quotas, volume restrictions or tiered caps on free UPI transactions.

Daily transaction limits prescribed by banks and the National Payments Corporation of India (NPCI), generally ranging from Rs 1 lakh to Rs 5 lakh depending on the transaction category, are security and risk-management safeguards. They are not charging thresholds.

For customers, the key point is that the Rs 5 MDR applicable to certain transactions above Rs 2,000 is a merchant-side payment cost and should not become an additional charge on the customer's bill.