India forced the Merchant Discount Rate to zero on UPI in January 2020. On 15 October 2026, a government notification brings it back — 0.4% above ₹2,000, with flat fees for essential sectors and a carve-out for capital markets. This page documents what MDR actually is, every name it hides under, exactly who pays what from 15 October, the MCC codes that decide it, and every claim's source.
Notified 14 Sept 2026 (Ministry of Finance gazette), operationalised by NPCI's circular and the Department of Financial Services FAQ of 15 Sept 2026, effective 15 Oct 2026.1,2
| Payment | Payer (you) | Merchant pays | Notes |
|---|---|---|---|
| P2P — friends, family, self-transfers | ₹0 | — | Free both sides, any amount (FAQ Q16) |
| Any UPI ≤ ₹2,000 | ₹0 | ₹0 | >95% of UPI P2M volume (FAQ Q2) |
| Small merchants (P2PM), ≤ ₹1 lakh/month inward | ₹0 | ₹0 | Zero MDR regardless of ticket size (Q23–26) |
| Standard P2M > ₹2,000 | ₹0 | 0.4% cap ₹300 at ₹75k+ | FAQ Q3, Q32; worked sums in Q35 |
| Railways · telecom · insurance · fuel · electricity · municipal water · piped gas > ₹2,000 | ₹0 | flat ₹5 | Thin-margin & public-service sectors (Q33, Q39–41) |
| Education fees > ₹2,000 | ₹0 | flat / capped | "Flat-fee structures or capped processing rates" — no number published (Q42) |
| Capital markets — MFs, brokers, dealers, platforms | ₹0 | 0.02% cap ₹300 | 20× cheaper than standard P2M (Q37–38) |
| UPI AutoPay / mandates | ₹0 | no prescribed MDR | Recurring utility bills, OTT, SIPs (Q22) |
| Credit-linked UPI — RuPay credit card, credit lines | per credit rules | credit-card rules apply | Outside this MDR framework (Q36) |
The Merchant Discount Rate is the percentage of a transaction that is deducted before the merchant's money settles. A ₹10,000 card payment at 2% MDR lands as ₹9,800. The word "discount" is a fossil from the era of paper vouchers — it is the rate at which the acquirer "discounts" (buys) the merchant's receivable. Nothing is discounted for anyone.19,20
MDR is not one fee. It is a bundle that pays four parties:
Indicative split of a typical card MDR. The interchange (acquirer → issuer) is the largest slice and funds cardholder rewards; it is set by the network and historically non-negotiable.3,21
The circular logic that made MDR famous: issuers need interchange to fund rewards → rewards make cardholders choose cards → merchants must accept cards → merchants pay MDR, which funds the rewards. The merchant, who makes the sale, cross-subsidises the cardholder, who holds the alternative.21
UPI has no rewards to fund, no credit risk, real-time settlement, and a non-profit switch. Interchange's original justifications mostly don't apply — which is why its MDR could be set near zero without the rail collapsing, and why the return to 0.4% is an order of magnitude below card rates.21,22
Same economic event, different costumes. Watch for these words on invoices, checkout pages and merchant agreements.
| TDR — Transaction Discount Rate | Gateway-speak, used interchangeably with MDR19 |
| MSC — Merchant Service Charge | UK / acquiring-industry standard |
| Discount rate | US acquirer terminology |
| Processing / transaction fee | Blended-quote language19 |
| Commission | Agent & PoS sales language |
| Swipe fee | US colloquial |
| Interchange fee | Acquirer → issuer; the big slice3,21 |
| Network / assessment fee | Visa · Mastercard · RuPay |
| Acquiring fee | Acquirer's margin |
| PSP / TPAP fee | UPI-era: ~₹0.30–0.35 per P2M txn (2016–19)22 |
| Setup · AMC · technology fee | Gateway fixed charges that replace % revenue19 |
| Convenience fee | IRCTC, billers, GPay bill payments 0.5–1% + GST15 |
| Platform fee | Paytm ₹4–30 per recharge/bill; PhonePe on recharges16 |
| Handling fee | Food-delivery / e-commerce checkout |
| Card surcharge | US: up to ~3%. India: barred for debit since 201714 |
| Wallet loading fee | PhonePe 1.5–3% (+GST) on credit-card loads16 |
| FX / international markup | 3–3.5% "international" gateway rate19 |
| PPI interchange | 1.1% on wallet-UPI > ₹2,000 (since Mar 2023) — MDR in all but name; argued to violate the PSS Act's no-merchant-fee intent7,20 |
| Instant-settlement premium | T+0 payout for 0.2–0.5% extra19 |
| Refund / chargeback fees | ₹3–5 and ₹100–500 per event19 |
| Government incentives | ₹2,000cr budget vs ~₹20,000–20,700cr est. ecosystem cost1,13 |
| Float + data monetisation | Wallet economics replacing interchange22 |
The official worked examples (FAQ Q35), plus the sector rates side by side:1
| Category | Above ₹2,000 | Cap | Payer | Merchant's effective rate at… |
|---|---|---|---|---|
| Standard P2M | 0.4% | ₹300 (at ₹75k+) | Merchant | ₹5k→₹20 · ₹25k→₹100 · ₹1L→₹300 |
| Rail, telecom, insurance, fuel, electricity, water, gas | flat ₹5 | — | Merchant | ₹5k→₹5 · ₹50k→₹5 · ₹5L→₹5 |
| Education | flat / capped | unpublished | Institution | number not in FAQ (Q42) |
| Capital markets | 0.02% | ₹300 | Merchant / platform | ₹25k→₹5 · ₹1L→₹20 · ₹15L→₹300 |
| Credit cards (comparison) | 1.5–2.5% | — | Merchant | FAQ Q4 |
| Debit cards (comparison) | ≤0.90% (RBI cap) | — | Merchant | FAQ Q4; caps from RBI/2017-18/1053 |
How the cap works: the ₹300 ceiling applies only once the ticket reaches ₹75,000. Between ₹2,000 and ₹75,000 the merchant pays a clean 0.4%; beyond ₹75,000 the fee freezes at ₹300 — which is why a ₹15 lakh capital-market payment still just pays ₹300, and a standard-P2M ₹5 lakh payment pays the same ₹300.
The FAQ puts the ecosystem's running cost at ~₹20,000 crore/year (Q10) — the Standing Committee had contrasted a ₹2,000 crore budget allocation against a ₹20,700 crore industry estimate.13 Revenue is earmarked for infrastructure, cybersecurity and a dedicated small-merchant fund (Tier 3–6 towns, NE states, J&K, Ladakh; schemes like PM SVANidhi and PM Vishwakarma), whose framework is to be finalised with RBI "within the next three months" (Q8–9, Q27).1
Every merchant on a digital rail carries a four-digit Merchant Category Code (MCC), assigned by the acquiring bank using card-network standards. Under the new framework, the MCC effectively is your MDR rate card: the flat-₹5 sectors, the 0.02% capital-market tier and standard 0.4% P2M all key off merchant categorisation.
| MDR category (FAQ wording) | Usual MCCs | From 15 Oct 2026 (UPI) | Card-market context |
|---|---|---|---|
| Fuel — petrol pumps (Q40) | 5541 5542 5552 5172 5983 |
flat ₹5 | 5541 = service stations; 5542 = automated fuel dispensers; 5552 = EV charging; 5172/5983 = fuel dealers17,18 |
| Railways (Q33) | 4112 4011 |
flat ₹5 | 4112 = passenger railways; 4011 = railroads. (Tolls are 4784 — likely standard P2M.)18 |
| Telecom (Q33) | 4814 4812 4899 |
flat ₹5 | 4814 = telecom services; 4812/4899 = telecom equipment/resale17 |
| Insurance (Q39) | 6300 5960 6381 6399 |
flat ₹5 | 6300 = premiums, underwriting; 5960 = direct-marketing insurance17,18 |
| Electricity · municipal water · piped gas (Q41) | 4900 4911 4931 4932 |
flat ₹5 | 4900 family = utilities; government-utility interchange is typically the lowest tier17,18 |
| Education (Q42) | 8211 8220 8241 8244 8249 8299 8351 |
flat / capped (rate unpublished) | 8211 = schools; 8220 = universities; 8299 = educational services; 8351 = child care17,18 |
| Capital markets — MFs, brokers, dealers, investment platforms (Q37–38) | 6211 6220 6282 6231 |
0.02% cap ₹300 | 6211 = securities brokers/dealers; 6220 = commodity contracts; 6282 = security/commodity services NEC; 6231 = investment trusts (AMCs)18 |
| Standard P2M — everything else | 5411 5812 5814 5651 5732 4784 …all other MCCs |
0.4% cap ₹300 | Groceries, restaurants, apparel, electronics, travel booking, tolls… |
| Small merchants / P2PM | any — determined by account type, not MCC | ₹0 | ≤ ₹1 lakh/month inward via UPI QR (Q23–24)1 |
The difference between categories is extreme: a ₹1,00,000 mutual-fund purchase routed as capital market costs ₹20; the same rupees routed as standard P2M cost ₹300 — 15×. A ₹5,000 fuel fill-up is ₹5 under MCC 5541; mis-tagged, it's ₹20. Merchants and platforms are already asking which MCC their UPI collections land under — that question is the practical successor to "what's your MDR?"9,10
Note: banks' MCC assignments also drive card rewards exclusions (utilities, insurance, government, rent, wallet loads are commonly excluded from cashback).17 Expect the same code to matter on both the cost side and the rewards side.
The framework's quiet centrepiece is the Person-to-Person-Merchant (P2PM) tier — the lakhs of shops and street vendors who receive UPI QR payments straight into personal accounts:1
The dedicated fund. MDR revenue will partly fund a small-merchant pool: onboarding assistance for acquiring banks/PAs, transaction incentives for small and rural merchants, Tier 3–6 + NE/J&K/Ladakh priority, plus notified central schemes (PM SVANidhi, PM Vishwakarma). Operational framework due with RBI within ~3 months of the FAQ — i.e. around January 2027 (Q8–9, Q27).1
Watch item: the FAQ says banks use "transaction velocity checks" on P2PM accounts. Whether the ₹1-lakh monitoring is transparent to the merchant is unstated — an accountability gap worth an RTI.
From 1 Jan 2020, Section 10A of the Payment and Settlement Systems Act made charging MDR on UPI and RuPay debit statutorily prohibited.4 The ecosystem's costs didn't vanish — they found other exits. Documented examples from the zero-MDR era:
| Exit route | Example | Who paid |
|---|---|---|
| Convenience fee on bill payments | Google Pay: 0.5–1% + GST on card-paid electricity bills; ₹3 on mobile recharges — labelled "processing fee" in places15 | Consumer |
| Platform fee | Paytm ₹4–30 on recharge/BPSS; PhonePe platform fees on recharges16 | Consumer |
| Wallet loading fee | PhonePe 1.5–3% (+GST) to load wallet by credit card16 | Consumer |
| PPI interchange | NPCI, Mar 2023: 1.1% on PPI-wallet UPI merchant txns > ₹2,000 — paid within the rail, merchant-side in effect; publicly argued to breach the no-merchant-fee statute7,20 | Merchant (via rail) |
| Gateway extras | Instant settlement 0.2–0.5%; refund ₹3–5; chargeback ₹100–500; setup/AMC minimums19 | Merchant |
| Taxpayer subsidy | Incentive schemes from Dec 2021: ₹1,300cr FY22 (payouts: UPI ₹957cr, RuPay debit ₹432cr) and successors — against ~₹20,000cr/yr ecosystem cost5,1 | Taxpayer |
| Data / float economics | Payments run at a loss for engagement, monetised via lending, ads, data22 | Everyone, invisibly |
| Step | Where | Notes |
|---|---|---|
| 1 | Your UPI app / bank's grievance desk | Every PSP must publish one; keep the transaction ID (UTR) |
| 2 | NPCI grievance — npci.org.in → Dispute Management | For UPI-specific disputes the bank won't move on |
| 3 | RBI Integrated Ombudsman — cms.rbi.org.in | Free; escalate after 30 days unanswered or unsatisfied |
The government itself says: verify charges only via MoF, RBI, NPCI and PIB — not forwarded messages (Q21). We agree, and we've linked the primary documents below.
Will I be charged for scanning a QR at a tea stall?
No. Consumers are never charged on UPI — and that stall is almost certainly P2PM (≤₹1L/month), so the merchant pays nothing either.1
Is my ₹50,000 rent via UPI now costlier?
For the landlord-as-merchant: only if receiving as a registered P2M — ₹200 at 0.4%. Rent MCC 6513 has no special tier in the FAQ. You pay ₹0 regardless.1
Do I get MDR back if I return goods?
The FAQ is silent on refunds of MDR. Gateways typically charge ₹3–5 per refund event on cards; watch for the same architecture on UPI.19
Why did my mutual-fund SIP get "free" treatment?
AutoPay mandates carry no prescribed MDR (Q22). But lump-sum purchases routed as capital-market UPI pay just 0.02% — the framework's cheapest tier after zero.1
Primary documents first; every number on this page resolves to one of these. Tiering: P = regulator/government document · S = reporting · V = vendor/pricing page.
MCC mapping caveat repeated for the record: the notified framework does not publish an MCC list. The crosswalk in §4 joins the FAQ's sector words to standard card-network MCCs; acquirer categorisation governs in practice. Treat the table as a map, not a rulebook.