The MDR framework will be effective from October 15, 2026; will apply to merchant transactions with a few exceptions.

• MDR is the fee that merchants pay to payment ecosystem participants (banks, payment service providers, and app operators).

Key details of new fee structure:

• Person to Merchant (P2M): 
  • 0.4% MDR on transactions above ₹2,000
    • No charges can be imposed on such 2,000 rupees payments through RuPay-powered debit cards either.

• Flat ₹300 on transactions above ₹75,000
• Merchants shall not pass this onto consumers.
• Exemptions: All Person-to-Person transactions, Small merchants and street vendors receiving up to ₹1 lakh per month (P2M) 
• Essential sectors (railways, telecom, fuel, insurance, utility bills, agricultural inputs): flat MDR of ₹5 for payments over ₹2,000
• Capital market (mutual funds, securities, stockbrokers): 0.02%, capped at ₹300
• Financial Inclusion: 5% of collections will fund UPI adoption among small merchants.

Need for This Fee

• Financial Sustainability: e.g. Parliamentary Standing Committee on Finance cited UPI's Rs 20,700 crore operating cost exceeds its Rs 2,000 crore subsidy.
• Market expansion: Self-sustaining revenue incentivizes banks to strengthen Cybersecurity & Infrastructure.
• Minimal Impact: exemptions leaves 96% of merchant UPI transactions unaffected.

Concerns

• Operational issue: Critics argue that merchants will ultimately pass the MDR onto buyers turning it into an indirect "digital payments tax".
• Low operational expenditure: UPI eliminates card related terminal costs and credit risks, while leading to overall savings due to reduced cash-handling for banks and government.
• Other: Back to cash transactions, unaccounted transactions, etc.