The 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.
How does the UPI MDR framework apply?
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.
| Transaction / Merchant Category | Transaction Threshold | MDR | MDR Cap |
| P2P UPI | Any amount | 0% | Nil |
| P2M – all merchants | Up to ₹2,000 | 0% | Nil |
| P2M – standard merchants | > ₹2,000 to < ₹75,000 | 0.40% | No separate cap |
| P2M – standard merchants | ≥ ₹75,000 | 0.40% | ₹300 |
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.
How does the sector-wise special rate apply to UPI?
Certain sectors, including , telecom, insurance, and fuel, will attract a flat MDR of ₹5 on transactions above ₹2,000.
| Category | Transaction Threshold | MDR | MDR on ₹10,000 payment | Effective MDR at ₹10,000 |
| Standard P2M | > ₹2,000 | 0.40% | ₹40 | 0.40% |
| Railways | > ₹2,000 | ₹5 flat | ₹5 | 0.05% |
| Telecom | > ₹2,000 | ₹5 flat | ₹5 | 0.05% |
| Insurance | > ₹2,000 | ₹5 flat | ₹5 | 0.05% |
| Fuel | > ₹2,000 | ₹5 flat | ₹5 | 0.05% |
| Agricultural inputs | > ₹2,000 | ₹5 flat | ₹5 | 0.05% |
| Utility payments | > ₹2,000 | ₹5 flat | ₹5 | 0.05% |
Source: Motilal Oswal Financial Services, Morning India report
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.
How do capital market transactions face MDR on UPI?
Capital -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.
| Capital Market Use Case | MDR | MDR Cap | MDR on ₹10,000 | MDR on ₹1 lakh |
| Mutual fund payments | 0.02% | ₹300 | ₹2 | ₹20 |
| Securities transactions | 0.02% | ₹300 | ₹2 | ₹20 |
| Stockbroker payments | 0.02% | ₹300 | ₹2 | ₹20 |
| Dealer payments | 0.02% | ₹300 | ₹2 | ₹20 |
Source: Motilal Oswal Financial Services, Morning India report
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.
What is the P2PM framework for small merchants?
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.
| Parameter | P2PM / Small Merchant Framework |
| Merchant type | Small merchants / micro vendors |
| UPI collection threshold | Up to ₹1 lakh/month |
| MDR | 0% |
| Payment mode | UPI QR |
| MDR even if individual payment > ₹2,000? | Yes – remains zero if merchant remains eligible under P2PM |
| GST registration required? | No |
| Existing QR replacement required? | No |
| Rural / semi-urban merchants covered? | Yes |
| Migration trigger | More than ₹1 lakh monthly inward UPI receipts for 3 consecutive months |
Source: Motilal Oswal Financial Services, Morning India report
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.