NPCI Moves to Impose 0.4% MDR on High‑Value UPI Payments to Sustain System

Zero merchant discount rate (MDR) on UPI payments above ₹2,000 will be replaced by a 0.4% charge, NPCI told the Supreme Court, saying the free‑MDR model can no longer be funded by the public exchequer.

What Happened

In August 2026 UPI processed a record 24.51 billion transactions worth about ₹29.82 lakh crore, averaging 791 million transactions per day. For FY 2025‑26 the platform handled roughly 241.62 billion transactions worth ₹314 lakh crore.

Reaction

Additional Solicitor General N. Venkataraman argued that the sheer scale of growth puts heavy demands on security, resilience and infrastructure, making zero MDR untenable. The NPCI countered petitions that the charge needed a new law, stating MDR is a system‑wide cost recovery charge, not a tax, and is allowed under the Payment and Settlement Systems Act, 2007.

Details

Person‑to‑person (P2P) payments – 70 % of total UPI value – stay free, as do all transactions below ₹2,000. Only about 4 % of merchant payments, those above the threshold, will attract the charge, leaving roughly 96 % of P2M transactions untouched. The UPI Steering Committee, including PhonePe, One97 Communications, Google Pay and CRED, endorsed the framework.

Context

The government’s incentive schemes since 2021‑22 have strained the budget; a ₹2,000 crore allocation for 2026‑27 covers just 11 % of actual system costs and 14 % of potential MDR revenue, prompting calls for a tier‑ed, self‑reliant model.