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0.4% MDR on UPI merchant payments above Rs 2,000 from October 15

By CAShorts DeskPublished Updated Source: Mint (NPCI fact sheet)

0.4% MDR on UPI merchant payments above Rs 2,000 from October 15
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A 0.4% merchant discount rate applies to person-to-merchant UPI payments above Rs 2,000 from October 15, 2026, capped at Rs 300 per transaction for payments of Rs 75,000 and above, NPCI's fact sheet says. P2PM small merchants receiving up to Rs 1 lakh a month stay at zero MDR; GST on the fee is claimable as input credit.

Syllabus: GS3 · Indian Economy & Growth; Prelims · Economy & Social Development; GS2 · Governance & e-Governance

Why it matters

Most UPI payments will still be free for merchants: transactions up to Rs 2,000 are over 96% of merchant volume, and street vendors under P2PM pay nothing. Larger shops will see a small deduction on bigger payments, but the GST charged on that fee can be claimed back as input tax credit, so it is not an extra tax cost.

Prelims pointers

  • NPCI (National Payments Corporation of India) operates UPI and defines the P2PM and P2M merchant categories.
  • GST paid on MDR can be set off against the GST payable on a merchant's sales, like any input tax credit.
  • Example: on a Rs 10,000 payment, MDR is Rs 40 and 18% GST on it is Rs 7.20, claimable as input tax credit.
  • Acquiring banks and payment service providers monitor P2PM merchants' Rs 1 lakh monthly inward threshold.

Practise a UPSC-style question

With reference to the merchant discount rate (MDR) on UPI payments, consider the following statements:

1. The MDR is a fee that a merchant pays its bank for accepting a digital payment, deducted on the merchant's side.

2. The new 0.4% MDR applies to person-to-merchant UPI payments above Rs 2,000.

3. Under the new framework, a person-to-merchant UPI payment of Rs 1 lakh would attract an MDR of Rs 400.

Which of the statements given above is/are correct?

  1. (a) 1 and 2 only
  2. (b) 2 and 3 only
  3. (c) 1 and 3 only
  4. (d) 1, 2 and 3
Show the answer

Answer: (a) 1 and 2 only

1 is correct: the MDR is the merchant's bank's fee on a card or digital payment, deducted from the merchant's side of the transaction rather than charged to the customer. 2 is correct: from 15 October 2026 the 0.4% MDR applies to P2M UPI payments above Rs 2,000. 3 is incorrect: the MDR is capped at Rs 300 per transaction for payments of Rs 75,000 and above, so a Rs 1 lakh payment attracts Rs 300, not Rs 400.

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