New Delhi, Sep 22: For millions of Indians, paying through a UPI QR code has become part of everyday life — from buying groceries and medicines to paying at neighbourhood shops and roadside stalls. With the introduction of Merchant Discount Rate (MDR) on certain higher-value transactions from October 15, concerns had emerged over whether digital payments could become more expensive for small businesses.
The National Payments Corporation of India (NPCI) has now clarified that the impact will be limited. More than 96 per cent of UPI person-to-merchant (P2M) transactions by volume are valued at ₹2,000 or below and will continue to remain outside the MDR framework.
This means that the vast majority of everyday UPI payments will continue without MDR, providing reassurance to both consumers and small merchants who have increasingly adopted QR-based payments.
Most everyday payments will remain untouched
Under the new framework, MDR will apply only to specified merchant transactions above ₹2,000. Payments made to merchants up to ₹2,000 will continue to attract zero MDR.
Person-to-person payments will also remain completely free, irrespective of the amount transferred. The government has clarified that individuals will not face transaction, platform or other charges for sending or receiving money through UPI.
For consumers, this means that routine payments at local shops, food outlets and other businesses are not automatically becoming chargeable simply because the new MDR framework is being introduced.
Small businesses get additional protection
The framework also provides a specific exemption for small merchants.
Merchants receiving up to ₹1 lakh per month through UPI QR codes under the eligible small-merchant category will continue to enjoy zero MDR. Importantly, the exemption applies to their eligible transactions even when an individual payment is above ₹2,000.
This provision could be particularly important for street vendors, neighbourhood stores and other micro businesses that rely on UPI for collecting payments.
For many of these businesses, accepting money digitally has become a simple way to reduce dependence on cash and make payment collection more convenient. Keeping such merchants outside MDR can help them continue using UPI without adding another routine transaction cost.
What changes from October 15?
From October 15, 2026, a 0.4 per cent MDR will apply to specified P2M UPI transactions above ₹2,000. The MDR will be capped at ₹300 for transactions of ₹75,000 and above.
The new charge is aimed at a relatively small portion of merchant transactions rather than UPI payments as a whole. According to government data, MDR is expected to apply to only about 4 per cent of merchant transactions by volume, leaving approximately 96 per cent unaffected.
The MDR is also not a government tax. It is distributed among participants in the payments ecosystem, including banks and payment application providers, to support the operation and expansion of UPI infrastructure.
Keeping digital payments accessible
The clarification is significant because small merchants have been among the major beneficiaries of India's rapid shift towards digital payments.
A QR code can allow a small shopkeeper or street vendor to accept payments without maintaining large amounts of cash or investing in traditional card-payment infrastructure. For customers, it offers a quick and familiar way to pay even for small purchases.
By keeping low-value transactions and eligible small merchants outside MDR, the new framework seeks to preserve this convenience while introducing a limited charge for specified higher-value merchant payments.
Banks have also been advised to ensure that MDR is not passed on to customers, while UPI application providers have been barred from imposing platform fees or hidden charges on users.
A more balanced approach to UPI's next phase
India's UPI ecosystem has grown from a digital payment facility into an important part of everyday commerce. As the network expands, the challenge is to maintain its affordability while also supporting the infrastructure, technology and security required to operate it at scale.
The new MDR framework attempts to address that balance by protecting everyday users and smaller merchants while introducing charges only for specified higher-value merchant transactions.
For consumers, the takeaway is straightforward: UPI is not becoming a paid service across the board. Small-value merchant payments and all person-to-person transfers will remain free, while eligible small merchants will continue to receive payments without MDR.
For India's neighbourhood shops, street vendors and micro businesses, that protection could help ensure that the convenience of digital payments remains an accessible part of everyday trade.
