Summary
From October 15, 2026, a Merchant Discount Rate of 0.4% will apply to person-to-merchant UPI transactions above ₹2,000, capped at ₹300 per transaction. It ends the zero-MDR regime in place since January 1, 2020. Person-to-person payments stay free, as do RuPay debit card payments of any size.
Government sources called fears of a return to cash "100% misplaced", noting that merchants already pay 1-3% on most card payments. NPCI chief Dilip Asbe said about three-fourths of merchants have never received a UPI payment above ₹2,000 and will be unaffected.
He said the aim is to let banks and payment firms reasonably recover costs and reinvest. An 18% GST applies on the fee. The Confederation of All India Traders has objected and the government plans a mechanism with the Indian Banks' Association to monitor whether merchants pass the fee on to buyers.
WHY IN NEWS FOR UPSC & STATE PCS
On September 24, 2026, government sources and the NPCI chief responded to concerns that the new UPI merchant fee, starting October 15, would push shopkeepers and customers back to cash. They set out who is exempt and outlined plans to stop merchants from passing the fee on to consumers.
Standard News
The Fee Is Aimed at Value, Not Volume and That Changes Who Should Worry
Two numbers explain the new UPI merchant fee better than any official statement:
- Only 4% of person-to-merchant UPI transactions are above ₹2,000.
- Yet those transactions carry about two-thirds of the value merchants receive through UPI. A 0.4% fee on that thin slice of payments reaches most of the money while barely touching most of the users. That is the design and it tells us who will actually feel it.
From the headline to the shop counter Who pays nothing.
- A neighbourhood kirana whose customers pay ₹60, ₹240, ₹800 at a time will pay nothing. About three-fourths of merchants have never received a single UPI payment above ₹2,000, according to NPCI.
- Friends splitting a bill pay nothing, because person-to-person transfers stay free.
- Anyone paying with a RuPay debit card pays nothing, even on large purchases. Who pays. The fee lands on merchants who routinely receive large payments: electronics stores, furniture dealers, hospitals, jewellers. The arithmetic.
- Take a ₹50,000 phone sale. The fee is 0.4% or ₹200. With 18% GST on that fee, the merchant's cost rises to ₹236.
- Above ₹75,000, the ₹300 cap applies, so the effective rate falls as the ticket size rises.
- Compare this with card payments, where merchants already absorb roughly 1-3%. For a large merchant, UPI remains the cheapest way to be paid electronically.
Why "back to cash" is the wrong fear The logic behind the fee. For six years, the zero-MDR rule made UPI a subsidised public good.
Adoption was spectacular, but banks and payment firms earned nothing from merchant payments to fund servers, fraud controls and capacity. The new fee turns UPI into infrastructure that pays for itself. It is expected to generate ₹13,000-15,000 crore in its first year, which NPCI says will let the ecosystem "reasonably recover" costs and reinvest. Why a return to cash is unlikely. For a large merchant, switching to cash means handling, storage, theft risk and reconciliation costs that easily exceed 0.4%.
The shops most likely to feel tempted to refuse UPI - small traders - are precisely the ones the ₹2,000 threshold exempts.
The real risks **Risk one:
the GST layer. An 18% tax on the fee raises the effective cost of every covered transaction. The GST Council meets on October 7 and officials say they hope it takes a favourable view. The issue is not expected to be on this meeting's agenda. Risk two: pass-through.** A merchant can quietly add a surcharge or raise prices for UPI buyers.
NPCI estimates that about 10% of overall UPI value is at risk of charges reaching consumers. Hence the proposed monitoring mechanism with the Indian Banks' Association and consultations with the Confederation of All India Traders.
Quick Facts
Key numbers & takeaways — revise these first
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MDR on UPI: 0.4% on person-to-merchant payments above ₹2,000, from October 15, 2026.
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Cap on the fee: ₹300 per transaction.
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Share of P2M UPI transactions above ₹2,000: 4% by volume, about two-thirds by value.
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Merchants who have never received a UPI payment above ₹2,000: about 75%.
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Share of overall UPI value at risk of pass-through to consumers: about 10%, per NPCI.
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Person-to-person UPI payments and RuPay debit card payments carry no MDR.
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MDR on most other debit and credit cards: broadly 1-3%.
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GST on MDR: 18%.
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GST Council meeting: October 7, 2026.
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Zero-MDR regime for UPI and RuPay debit cards: in force since January 1, 2020.
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Expected revenue from the new MDR in its first year: ₹13,000-15,000 crore.
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NPCI MD and CEO: Dilip Asbe.
Connect the dots for your UPSC preparation.
Standard news covers the event. Log in to read our comprehensive analysis and uncover the hidden constitutional, structural, and ethical dimensions of this topic:
The full distributional map of the 0.4% fee - which merchant categories pay, which are exempt and how the ₹300 cap reshapes the effective rate
Why the zero-MDR mandate under Section 269SU created a sustainability gap and what ₹13,000-15,000 crore of annual revenue is meant to fund
How the 18% GST on MDR and merchant pass-through could undo the careful targeting and what the IBA monitoring mechanism can and cannot do
What UPI's shift from subsidy to self-funding teaches about scaling other digital public infrastructure
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