India's digital payments landscape shifted significantly on 15 September 2026 when the National Payments Corporation of India (NPCI) published its detailed Merchant Discount Rate (MDR) framework for UPI, confirming which transactions will attract fees and which will not when the rules take effect on 15 October 2026.
The framework introduces a 0.4% MDR on eligible person-to-merchant (P2M) UPI transactions above ₹2,000. The charge is borne within the merchant payment ecosystem not by consumers and is capped at ₹300 per transaction for payments of ₹75,000 and above. A flat fee of ₹5 per transaction applies in specified essential sectors including railways, telecom, insurance and fuel.
Critically for salaried workers and HR teams, person-to-person (P2P) transfers remain entirely free regardless of the amount. Since salary disbursements processed as direct bank-to-bank transfers are classified as P2P transactions, routine payroll payments are unaffected by the new structure. UPI AutoPay and recurring mandates covering utility bills, SIPs and insurance EMIs also carry no prescribed MDR.
NPCI has stated that approximately 96% of all merchant transactions will remain outside the new pricing structure, as the majority fall below the ₹2,000 threshold or qualify for small-merchant exemptions. Merchants receiving up to ₹1 lakh per month via UPI QR codes under the P2PM classification face zero MDR across all transactions.
The framework prohibits merchants from passing MDR costs to customers as a UPI surcharge. Banks have been advised not to redirect the charge to consumers, and UPI app providers are barred from adding platform fees or hidden charges to individual users.
The MDR is distributed among banks, payment service providers and UPI app providers. NPCI has clarified it is not a government tax and does not flow to the government or to NPCI itself. A separate small-merchant fund, to be seeded with 5% of total MDR collections, will be finalised in consultation with the Reserve Bank of India within three months.
