UPI Payment MDR Update 2026: Decision on implementation of MDR on UPI may come by November 15, know who will have to pay the charge

UPI Payment MDR Update 2026: The time for a major change in the rules of Unified Payments Interface (UPI), which has become the backbone of digital payments in the country, is very close. After the end of the festive season, now the National Payments Corporation of India (NPCI) can give an official decision regarding the date of implementation of Merchant Discount Rate (MDR) on select merchant UPI transactions by 15 November 2026. It is noteworthy that NPCI, in its guidelines issued on September 15, had earlier talked about implementing this new system from October 15, 2026, but it was temporarily postponed in view of the convenience of traders and the market during Diwali and festive shopping. NPCI had then clarified that it would be implemented by issuing a separate notification immediately after Diwali. However, the biggest relief for the common customers is that in this proposed system, no additional charge will be imposed on the common consumer paying through UPI, rather this charge will be borne directly by the big merchants.

Amidst the news of implementation of MDR on UPI, the biggest confusion among the common people is whether now extra money will be deducted from their pocket while making payment at the shop or sending money to friends. As per NPCI and Finance Ministry norms, there will be no charges for person-to-person (P2P) money transfers to friends and family members, split bills or transfer money from one bank account to another – this facility will remain completely free, no matter the amount. Additionally, UPI payments up to ₹2,000 to any shop or merchant (P2M) will also not attract any MDR. Even if you pay more than ₹2,000 (like ₹5,000 or ₹50,000) at a showroom or big store, only the original amount of the bill will be deducted from your bank account. UPI apps (like PhonePe, Google Pay, Paytm) are also explicitly prohibited from charging any platform fees from customers.

MDR is actually a merchant-side processing fee, which is deducted from the bank settlements of large merchants and e-commerce companies that accept payments. For example, if a customer makes a purchase of ₹3,000 at a major electronics store and makes payment through UPI, the entire ₹3,000 will be deducted from the customer’s account, but ₹2,988 will be credited to the merchant’s account after deducting 0.4% MDR (₹12). However, small street shopkeepers, street vendors and small traders have been completely kept out of this rule. All small merchants under the P2PM (Person-to-Small-Merchant) category with monthly UPI QR collections up to ₹1 lakh will continue to enjoy zero MDR—even if they accept payments of more than ₹2,000 at a time. According to NPCI, only 4 percent of the total merchant UPI transactions will come under the ambit of this rule, while 96 percent of the transactions will remain completely unaffected.

To protect merchants from heavy burden on large transactions, NPCI has also set a strict upper limit (Cap) of fees. For general large merchants, the MDR is set at 0.4 percent on payments above ₹2,000, but any payment of ₹75,000 or more will attract a maximum of ₹300. That means even if a customer makes a purchase of ₹1 lakh or ₹2 lakh through UPI, the merchant will still have to pay only ₹300 instead of paying ₹400 or ₹800 at the rate of 0.4%. Similarly, a flat fee of only ₹5 has been fixed instead of percentage on essential sectors directly related to the general public such as railway ticket booking, telecom recharge, insurance premium, petrol-diesel pumps, agricultural inputs and electricity-water bills (above ₹2,000).

According to experts in the digital payment ecosystem, the expansion of UPI in the country has reached unprecedented levels and banks and fintech companies spend thousands of crores of rupees on its servers, cyber security, AI based fraud detection and maintenance of banking infrastructure. Due to the zero MDR model, it was becoming difficult for small and medium payment aggregators to meet their operating costs. Recently, on November 5, 2026, in response to a PIL filed in the Supreme Court, NPCI had filed an affidavit clarifying that this framework has been prepared after extensive deliberations and recommendations of the Parliamentary Standing Committee on Finance, and it will not put any burden on common consumers or small shopkeepers. Now the new date for banks and payment systems will become clear as soon as the official notification of NPCI is released by 15th November.