UPI MDR explained: Flat ₹5, 0.40% or 0.02%? Know what applies to merchants, key sectors and capital markets

The UPI 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.

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.

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.

Certain sectors, including railways , telecom, insurance, and fuel, will attract a flat MDR of ₹ 5 on transactions above ₹ 2,000.

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.

Capital market -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.

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.

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.

The ₹ 2,000 transaction threshold for standard P2M merchants does not apply in the same way to eligible P2PM merchants.