India will introduce a 0.4% merchant discount rate (MDR) on select high-value Unified Payments Interface (UPI) transactions starting October 15. The MDR will apply to person-to-merchant transactions above ₹2,000, capped at ₹300 for payments of ₹75,000 and above. This change comes as UPI processed 24.51 billion transactions worth ₹29.82 lakh crore in August alone, marking a new phase in the country’s digital payments landscape, according to inc42.com.
The new MDR framework shifts some costs to merchants, who previously enjoyed free UPI transactions. While the government states that around 96% of person-to-merchant UPI transactions will remain unaffected, merchants have expressed concerns about the impact on their margins. Several FMCG distributors and retailers told inc42.com that even a 0.4% charge can accumulate significantly over hundreds of transactions, affecting profitability.
This move reflects the growing scale and maturity of India’s digital payments ecosystem, which has relied heavily on government incentives to drive adoption. The MDR introduction aligns India with global norms where payment infrastructure costs are typically shared. However, it also marks a departure from years of free transactions, potentially influencing merchant behavior and digital payment growth. The UPI system’s vast transaction volume underscores its central role in India’s economy.
The MDR charge will take effect from October 15, impacting high-value UPI payments across the country. The government’s cap of ₹300 per transaction aims to limit the cost burden on merchants, but the full financial impact will become clearer as the policy is implemented and transaction data is analyzed.