The Reserve Bank of India (RBI) has supported the introduction of a 0.4% Merchant Discount Rate (MDR) on person-to-merchant (P2M) UPI transactions exceeding ₹2,000, describing the move as an important step toward ensuring the long-term sustainability of India’s rapidly growing digital payments ecosystem. The new framework, announced by the National Payments Corporation of India (NPCI), will come into effect from October 15, 2026. RBI said the additional revenue would help strengthen payment infrastructure, encourage innovation and support the continued expansion of UPI services across the country while maintaining seamless digital payment experiences.

The government has clarified that UPI users will not have to pay any additional charges while making payments. The MDR will be applicable only within the merchant payment ecosystem, meaning merchants accepting UPI payments above ₹2,000 will bear the 0.4% fee. For transactions of ₹75,000 or more, the MDR will be capped at ₹300 per transaction. Meanwhile, all person-to-person (P2P) UPI transfers will remain completely free, and merchants will also continue to enjoy zero MDR on UPI transactions of up to ₹2,000, which account for over 95% of merchant UPI transactions by volume.

According to the RBI, introducing MDR on high-value merchant transactions will create a sustainable revenue model for banks, payment service providers, fintech firms and other stakeholders involved in the UPI ecosystem. The regulator believes that a fair distribution of these charges will encourage greater investment in technology, payment infrastructure and merchant acceptance networks, ultimately helping UPI reach more businesses and consumers. Currently accepted in 11 countries, UPI continues to expand globally, and the RBI reiterated its commitment to keeping the platform safe, affordable, accessible and future-ready while supporting its long-term growth.