NPCI Imposes 0.4% MDR on UPI Transfers Exceeding Rs 2,000

The National Payments Corporation of India has issued a circular introducing a 0.4% Merchant Discount Rate on Unified Payments Interface transactions exceeding Rs 2,000, effective Tuesday, September 15, 2026. The new fee framework applies specifically to person-to-merchant payments handled through participating banks and payment gateways, while all person-to-person transfers and transactions involving small vendors remain fully exempt from the charges.

The regulatory shift follows parliamentary action in August 2026, when lawmakers amended Section 10A of the Payment and Settlement Systems Act, 2007. The statutory change empowered the Central Government to determine which digital payment channels may attract MDR charges, removing previous restrictions and paving the way for a formal notification issued on September 14, 2026, which set zero MDR for transactions up to Rs 2,000.

Under the newly established guidelines, standard retail merchant transfers crossing the Rs 2,000 threshold will attract the 0.4% fee, whereas smaller purchases conducted via UPI or RuPay debit cards are protected from any charges. For illustrative purposes, a transaction valued at Rs 5,000 incurs a fee of Rs 20 at the 0.4% rate, while a Rs 10,000 payment results in a charge of Rs 40.

Specific institutional sectors face a modified tariff structure under the circular. Transactions exceeding Rs 2,000 in railways, telecommunications, insurance, fuel distribution, and agricultural input supply will incur a flat MDR charge of Rs 5 rather than the percentage-based levy. Government statistics indicate that person-to-person transfers constitute 70% of total UPI transaction value, with approximately 4% of merchant payments crossing the threshold to attract the new fee.

The 0.4% charge extends to financial transactions directed toward mutual funds, securities, stockbrokers, and dealers. UPI serves as a core payment conduit for retail market participants, facilitating Initial Public Offering applications, mutual fund subscriptions, and brokerage account funding.

At the 0.4% rate, capital market transactions incur a fee equivalent to Rs 20 on an investment of Rs 1 lakh, subject to a maximum cap of Rs 300 that limits charges on larger transfers. Market participants anticipate that regular retail investors executing monthly Systematic Investment Plans will experience minimal behavioral shifts, whereas active traders moving funds frequently may be more sensitive to the added expenses.

Financial analysts at Jefferies estimate that applying fees to larger merchant transfers could generate between Rs 5,000 crore and Rs 10,000 crore annually for the payments ecosystem. Discussions regarding revenue distribution among market participants are ongoing, with preliminary proposals suggesting that banks could receive 40%, while payment applications and aggregators would split the remainder equally.

National Stock Exchange Managing Director and Chief Executive Officer Ashishkumar Chauhan stated that the MDR on UPI might impact trading volumes routed through the payment channel in the short term, but activity is likely to stabilize over time. Intermediaries, including brokers and mutual fund platforms, have not yet clarified whether they will absorb the fee or pass incremental costs onto retail investors, while operational mechanics remain under review by the Reserve Bank of India and NPCI.