The Finance Ministry said on Wednesday that the 0.4 % MDR will hit merchant‑side UPI payments above Rs 2,000 from Oct 15, 2026, after Congress‑led opposition alleged US pressure on the ruling government.
The Ministry clarified that the MDR is not a tax but a distribution among banks and payment‑app providers to keep the UPI ecosystem viable. The levy will be borne by merchants only, capped at Rs 300 per transaction, and will not affect the free person‑to‑person transfers that UPI has championed since 2016.
NPCI, UPI’s operator, said the revenue will fund security and scaling upgrades, while essential services such as rail tickets, telecom, fuel and insurance will see a flat Rs 5 fee for transactions over Rs 2,000. Mutual‑fund and stock‑brokerage UPI moves will attract a smaller 0.02 % rate, also capped at Rs 300.
Small merchants—about 96 % of all UPI users—collecting less than Rs 1 lakh monthly will remain fully exempt, a move that keeps rural and semi‑urban traders on the digital map. One such trader in Odisha, who runs a stall selling spices, said the exemption keeps his costs low and his customers happy.
UPI handled roughly Rs 314 lakh crore in FY 2025‑26, showing its scale. The Ministry expects the MDR to go live on Oct 15, with merchants required to integrate the new fee into their billing systems before the start of the month.