New Delhi, September 24, 2026 (Yes Punjab News)
The introduction of Merchant Discount Rate (MDR) on select high-value UPI merchant transactions is being viewed by stakeholders as a move towards creating a sustainable revenue model for India’s rapidly expanding digital payments ecosystem, while keeping most transactions free for users and small merchants.
Under the proposed framework, MDR is not a tax, cess or surcharge, with the charges remaining within the payments ecosystem and being distributed among banks, payment service providers and technology platforms involved in processing transactions. No portion of the MDR would go to government funds.
All person-to-person UPI transactions will continue to remain free irrespective of value. Merchant payments of up to Rs 2,000 will also attract zero MDR, while small merchants receiving up to Rs 1 lakh per month through UPI QR codes will remain exempt. RuPay debit card transactions will similarly remain outside the MDR framework.
Nearly 96 per cent of UPI merchant transactions are below Rs 2,000, meaning most users and merchants are expected to remain unaffected. MDR would apply only to specified person-to-merchant transactions above Rs 2,000.
The standard MDR has been set at 0.4 per cent, with a maximum cap of Rs 300 on transactions of Rs 75,000 and above. Essential sectors such as railways, telecom, insurance, fuel and agricultural inputs would face a flat charge of Rs 5 for transactions above the threshold.
Supporters of the framework argue that the charge is comparable with merchant fees already applicable across other payment systems, including credit and debit cards. They maintain that MDR represents the cost of processing a digital payment rather than a levy on the purchase itself.
For example, a Rs 5,000 UPI merchant payment would attract an MDR of Rs 20 under the proposed structure, which stakeholders say is lower than charges often associated with credit card transactions of a similar value.
A key argument in favour of MDR is that it could provide a revenue stream to support the infrastructure required to operate and expand UPI. With transaction volumes continuing to rise, payment networks require sustained investment in technology infrastructure, servers, cybersecurity, fraud detection and customer support.
The framework is also aimed at supporting the expansion of digital payments in rural and semi-urban areas. With more than 55 crore UPI users already on the platform, stakeholders believe further investment will be needed to expand adoption among remaining users and merchants while improving reliability and service quality.
Industry participants also argue that MDR revenues could help fund emerging products and services, including Credit on UPI, feature-phone-based solutions such as UPI 123Pay and other innovations aimed at widening digital financial inclusion.
Under the proposed distribution mechanism, 40 per cent of the MDR collected from eligible transactions would go to the issuing bank, 30 per cent to the merchant acquirer, 20 per cent to the UPI application provider and 10 per cent to the payer’s PSP bank.
Supporters further point out that merchant acceptance charges are common across digital payment systems globally, with similar transaction-based fee structures existing in countries including Australia, Brazil, China, Indonesia, Singapore, South Korea and the United States.
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