UPI MDR 0.4% above ₹2,000: what merchants will actually pay
Every UPI payment above ₹2,000 will cost the merchant 0.4% of the full amount, capped at ₹300. Payments up to ₹2,000 stay free, and NPCI says they make up over 95% of merchant transactions.
NPCI is introducing a merchant discount rate (MDR) on part of UPI person-to-merchant traffic. The new pricing was due on 15 October 2026, but on 13 October NPCI pushed it to just after Diwali, with the exact date to be notified separately. That leaves merchants a few weeks to rerun their numbers.
Which UPI payments will carry a fee
Only person-to-merchant (P2M) payments are affected. P2P transfers stay free.
| Payment | Merchant fee |
|---|---|
| P2M up to ₹2,000 | 0 |
| P2M above ₹2,000 | 0.4% of the full amount, capped at ₹300 |
| Railways, telecom, insurance, fuel above ₹2,000 | flat ₹5 per transaction |
| Small P2PM merchants (up to ₹1 lakh a month via QR) | 0 |
The 0.4% applies to the whole ticket, not just the part above ₹2,000. A ₹3,000 payment costs ₹12; a ₹50,000 payment costs ₹200. The ₹300 cap kicks in at ₹75,000.
According to explainers in the Indian press, the fee sits with the merchant and is not meant to be passed on to customers as a separate charge. It stays within the ecosystem — banks, payment companies and apps. NPCI says the money will fund UPI growth, resilience and cybersecurity, and that the rate is still below card and wallet pricing.
Monthly cost: a worked example
Take a hypothetical online store (an illustration, not a real merchant) with 1,000 UPI payments a month:
| Ticket | Payments | Fee each | Total |
|---|---|---|---|
| ₹1,200 | 700 | ₹0 | ₹0 |
| ₹4,000 | 250 | ₹16 | ₹4,000 |
| ₹90,000 | 50 | ₹300 (cap) | ₹15,000 |
| Total | 1,000 | ₹19,000 |
Turnover is ₹63.4 lakh, fees are ₹19,000 — roughly 0.3%. The striking part: 50 high-value orders generate almost 80% of the cost, while 700 small ones cost nothing.
Second example: an online course priced at ₹4,999 with 600 sales a month. Each payment costs ₹20, or ₹12,000 a month. The cap never helps here.
Plug in your own numbers in our fee calculator: set 0.4% and your average ticket, and treat anything above ₹75,000 as a flat ₹300.
Who takes the biggest margin hit
In our view, businesses with average tickets between ₹2,000 and ₹75,000 and thin margins feel it most: electronics, education, travel, annual subscriptions. They pay the full rate on high UPI volume.
Low-ticket sellers — food delivery, small retail, in-app purchases — will barely notice. Very large tickets benefit from the cap: ₹300 on a ₹1.5 lakh payment is 0.2%.
Splitting prices to stay under ₹2,000 is tempting. We would hold off. NPCI has not said how it will treat such schemes, and some buyers simply won't make the second payment — lost revenue can easily exceed the ₹16 saved.
Questions to ask your PSP before launch
0.4% is the ecosystem rate. Your PSP contract may bundle it into your existing pricing or add it on top. Ask:
- how UPI payments above ₹2,000 will be priced, and from what date;
- whether the ₹300 cap applies under your contract;
- whether your business falls into the flat ₹5 categories;
- whether MDR will show as a separate line in settlement reports.
Vague answers are a good reason to compare offers. You can find providers with UPI acceptance on our India payment methods page, and the basics of MDR are in the glossary.
One task for this week: export last month's UPI payments, total the ones above ₹2,000 and multiply by 0.4%. Ten minutes, and you have a real number.
Sources
This article was prepared by the PayFlow editorial team with the help of AI, based on the public sources listed above. It is for information only and is not legal or financial advice; provider terms change — check current terms with an operator.