The Unified Payments Interface (UPI) is an instant payment system operated by the National Payments Corporation of India (NPCI). As of 13 October 2026, NPCI had deferred the proposed 0.4% Merchant Discount Rate (MDR) on selected Person-to-Merchant (P2M) UPI transactions exceeding ₹2,000 until after Diwali 2026.
UPI Payment Categories
UPI transactions include Person-to-Person (P2P) payments between individuals and Person-to-Merchant (P2M) payments for goods or services. P2P transactions, such as transfers between friends or family, remain free for customers regardless of transaction amount. Most bank-account-based merchant payments of up to ₹2,000 also remain free of customer charges. The proposed MDR applies to eligible P2M transactions above ₹2,000, rather than to transfers between individuals. MDR is a charge associated with processing a merchant payment, and merchants typically bear this cost. The proposed framework was initially scheduled to take effect on 15 October 2026.
Merchant Discount Rate and Interchange Fees
The deferred proposal set an MDR of 0.4% for eligible transactions above ₹2,000, capped at ₹300 per transaction for payments of ₹75,000 or more. It proposed a concessional flat MDR of ₹5 for transactions above ₹2,000 in categories including railways, telecom services, insurance and fuel. NPCI separately introduced an interchange fee on UPI payments made using Prepaid Payment Instruments (PPIs), effective from 1 April 2023. For PPI transactions above ₹2,000, the interchange fee can be up to 1.1% and varies from 0.5% to 1.1% by merchant category. The merchant pays this fee to the payment service provider; it is not charged directly to the customer.
Prepaid Wallet Charges
For PPI wallet loading above ₹2,000, PPI issuers must pay a wallet loading service charge of 15 basis points to the remitter bank. A basis point is one-hundredth of a percentage point; 15 basis points equal 0.15%.
Important Facts for Exams
- NPCI operates the Unified Payments Interface in India.
- P2P refers to Person-to-Person transactions, while P2M refers to Person-to-Merchant transactions.
- The PPI-linked interchange fee took effect on 1 April 2023.
- Most bank-account-based UPI merchant payments up to ₹2,000 remain free of customer charges.
The proposed 0.4% MDR was deferred until after Diwali 2026. The PPI-linked interchange fee and the deferred MDR proposal are separate charge frameworks.
