New Delhi, Sept. 16: The Reserve Bank of India (RBI) on Tuesday said the introduction of Merchant Discount Rate (MDR) on specified large-value UPI merchant transactions is an important step towards strengthening the long-term sustainability of India’s digital payments ecosystem.
The central bank said an appropriate distribution of MDR among participants in the payment ecosystem would support continued investment in technology, infrastructure and payment acceptance networks.
According to the RBI, such investment could help expand UPI acceptance, increase the customer base and support sustained growth in transaction volumes.
The RBI said the revised framework would allow UPI to continue scaling and supporting consumers and businesses while maintaining its role as a widely used digital payment system.
The framework distinguishes between person-to-person (P2P) and person-to-merchant (P2M) transactions. P2P UPI transactions will remain free irrespective of the amount transferred. The new MDR provisions apply only to specified P2M transactions above ₹2,000.
Under the framework, an MDR of 0.4 per cent will apply to specified P2M transactions above ₹2,000. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction. The charge will be shared among participants in the payment ecosystem, including banks, payment service providers and UPI application providers.
The government has clarified that MDR is neither a tax nor a charge collected by the government or the National Payments Corporation of India (NPCI). It is a charge within the payment ecosystem intended to support the operation and expansion of UPI.
The framework also provides specific treatment for essential and thin-margin sectors. P2M transactions above ₹2,000 in sectors including railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5 per transaction.
The Finance Ministry has further clarified that payments to merchants up to ₹2,000 will remain free. Transactions covered under the zero-MDR framework for small merchants will also remain free, with the government stating that approximately 96 per cent of all P2M transactions will remain unaffected by the revised framework.
The small-merchant provision includes street vendors and other small businesses receiving up to ₹1 lakh per month through UPI QR codes under the specified person-to-person-to-merchant category. Such transactions will continue to receive zero-MDR treatment under the framework.
The RBI said it remains committed to ensuring that UPI continues to be safe, seamless, affordable and accessible while supporting the long-term growth and sustainability of the country’s digital payments ecosystem.
The revised framework comes as UPI enters its second decade as one of India’s principal digital payment platforms. The Finance Ministry said in August that UPI had processed 2,366 crore transactions worth ₹29.9 lakh crore in July 2026 alone, while the system had become operational in 11 countries.
The government has said the revised MDR framework is intended to support the continued expansion of UPI while protecting individual users and small merchants from additional payment costs.
The RBI’s comments focus on the sustainability of the wider payment ecosystem, particularly the need for continued investment in technology, infrastructure and acceptance networks as UPI transaction volumes expand.
The new framework does not introduce charges for person-to-person UPI transfers. Instead, the MDR provisions are targeted at specified merchant transactions above the ₹2,000 threshold, with separate rates and caps applying to certain categories.
The revised framework is therefore intended to balance continued access to UPI for everyday users with a mechanism for supporting the costs associated with operating and expanding the digital payment infrastructure.
The RBI said the objective remains to ensure that UPI continues to serve consumers and businesses across the country while maintaining affordability and accessibility.
