MDR Full Form: Merchant Discount Rate on UPI and Cards Explained
Independent guide. We are not part of RBI, NPCI or any bank, and we never ask for your account details, PIN or OTP.
MDR stands for Merchant Discount Rate. It is the fee a shop's bank deducts when the shop accepts a card or UPI payment. The merchant pays it, not you. From a date after Diwali 2026, larger shops will pay 0.4% MDR (capped at ₹300) on UPI payments above ₹2,000. Paying people stays free.
- Full form
- Merchant Discount Rate
- Paid by
- The merchant, to its bank
- Paid by you
- Nothing; it must not be passed on
- UPI (from a date NPCI will notify)
- 0.4% above ₹2,000, max ₹300
- UPI up to ₹2,000
- Zero
- Debit cards (RBI cap)
- Up to 0.90%, max ₹1,000
- RuPay debit cards
- Zero since 1 Jan 2020
- Is it a tax?
- No
What is MDR?
When you pay a shop by card or UPI, the shop's bank (called the acquirer) keeps a small part of the payment as its fee. That fee is the MDR. It is usually deducted when the shop is paid, so the shop receives slightly less than you paid.
- The acquirer shares the MDR with the others who handle the payment: for cards, the card-issuing bank and the card network; the network's rules set the split.
- The issuer's share is called interchange.
- It pays for running the payment system: technology, fraud checks and customer service.
- MDR is a commercial fee, not a tax.
Where the MDR on a ₹5,000 payment goes
Sample: you pay ₹5,000 by UPI at a large shop, after the new rates start. 0.4% of ₹5,000 is ₹20.
MDR rates by payment type
Framework announced on 15 Sep 2026. It starts after Diwali 2026, on a date NPCI will notify. Until then, UPI MDR stays zero.
| Payment | MDR paid by the merchant |
|---|---|
| To a person (P2P), any amount | None, ever |
| To a merchant (P2M), up to ₹2,000 | Zero |
| Small merchant (P2PM) receiving up to ₹1 lakh a month, any amount | Zero |
| P2M above ₹2,000 | 0.4%, capped at ₹300 (reached at ₹75,000) |
| Railways, telecom, insurance, fuel, agricultural inputs, above ₹2,000 | Flat ₹5 |
| Capital markets (mutual funds, brokers) | 0.02%, capped at ₹300 |
| AutoPay mandates (bills, subscriptions, investments) | No prescribed MDR |
Samples from NPCI: ₹3,000 → ₹12; ₹50,000 → ₹200; ₹1,00,000 → ₹300 (not ₹400). A small merchant moves to the regular P2M category after receiving over ₹1 lakh a month for 3 months in a row. UPI payments from a linked credit card or credit line follow card rules instead.
RBI's caps for debit cards (other than RuPay), in force since 1 Jan 2018:
| Merchant | Card machine or online | QR code |
|---|---|---|
| Turnover up to ₹20 lakh last year | Up to 0.40%, max ₹200 | Up to 0.30%, max ₹200 |
| Turnover above ₹20 lakh | Up to 0.90%, max ₹1,000 | Up to 0.80%, max ₹1,000 |
RuPay debit cards: zero MDR since 1 Jan 2020. Sample: ₹5,000 on a non-RuPay debit card at a large shop → at most ₹45.
RBI does not set or cap credit card MDR, so it depends on the card network, the type of card and the merchant's agreement. It is usually higher than debit card MDR because the issuer also recovers the cost of your interest-free credit period.
This is why some shops ask for extra on credit cards. That extra is a surcharge, not the MDR itself (see below).
Do you pay MDR?
- No. MDR is charged to the merchant by its bank.
- RBI (debit cards) and the government (UPI) have told banks to ensure merchants do not pass MDR on to customers.
- UPI apps may not add a platform fee or any other charge on UPI payments.
- Paying people, splitting bills and moving money between your own accounts on UPI stays free, with no monthly cap on the number of free payments.
A shop asks for extra on UPI or card
RBI calls this a surcharge: a charge a merchant adds for a particular payment mode, sometimes more than the merchant's actual MDR. A convenience fee (for example, on online ticket booking) is different: it is a charge for the service and is usually the same for every payment mode.
- Tell the shop that merchants must not pass MDR on to customers. For UPI, up to ₹2,000 it is zero anyway.
- Ask for a bill showing the extra charge, or keep the payment reference.
- You can also raise it with the shop's bank, since banks have been told to make sure merchants don't pass MDR on. The bank's name is usually on the QR standee or card slip.
Don't believe social-media posts about new UPI charges. Check press releases from PIB, RBI or NPCI. In April 2025 the government called claims of GST on UPI payments over ₹2,000 false.
For merchants: what changes
- Existing QR codes and soundboxes keep working; nothing to replace.
- Small vendors receiving up to ₹1 lakh a month on a UPI QR into their own account (P2PM) pay zero, even on payments above ₹2,000. No GST registration is needed for this.
- Larger merchants pay 0.4% only on payments above ₹2,000, or ₹5 flat in the listed essential sectors.
- 5% of MDR collections go into a fund to bring small merchants onto digital payments, especially in smaller towns, the North-East, J&K and Ladakh. Its framework is being finalised with RBI.
Zero MDR and government incentives
- From 1 Jan 2020, MDR became zero on RuPay debit cards, BHIM-UPI and BHIM-UPI QR codes. Section 10A of the Payment and Settlement Systems Act, 2007 bars banks and system providers from charging payer or receiver for these modes.
- Under section 187 of the Income-tax Act, 2025 (section 269SU of the old 1961 Act), businesses with turnover above ₹50 crore in the previous tax year must offer these modes, or face a penalty of ₹5,000 a day under section 452.
- To make up for zero MDR, the government paid acquiring banks an incentive on RuPay debit card and low-value UPI merchant payments. In 2024–25 it was 0.15% on UPI payments up to ₹2,000 to small merchants.
- The 2026 framework brings MDR back only for larger UPI merchant payments. We found no official change for RuPay debit cards.
History
RBI sets debit card MDR caps by merchant turnover, effective 1 Jan 2018.
Cabinet decides the government will bear MDR on debit card, BHIM-UPI and AePS payments up to ₹2,000 for two years from 1 Jan 2018.
Zero MDR on RuPay debit cards and BHIM-UPI.
Incentive scheme approved for 2021–22: ₹1,300 crore.
RBI publishes a discussion paper on charges in payment systems.
Incentive scheme for 2022–23: ₹2,600 crore.
Incentive scheme for 2024–25: ₹1,500 crore.
Government announces the UPI MDR framework.
NPCI says it starts after Diwali, on a date to be notified.
FAQs
Will I pay extra for UPI after Diwali 2026?
No. MDR is paid by merchants. Customers pay nothing, and UPI apps may not add platform fees.
Is MDR a tax?
No. It is a fee the merchant's bank charges for handling the payment, shared within the payment system.
When does UPI MDR start?
After Diwali 2026, on a date NPCI will notify. We found no announced date as of 31 Oct 2026.
How much MDR on a ₹5,000 UPI payment?
₹20 (0.4%) for a regular merchant, ₹5 in essential sectors such as fuel or insurance, and nothing for a small merchant receiving up to ₹1 lakh a month.
Will shops raise prices because of MDR?
NPCI expects merchants to absorb it as a normal business cost, as they do with card fees. Merchants must not add it to your bill.
Is there MDR on UPI AutoPay?
No prescribed MDR applies to AutoPay mandates such as utility bills, subscriptions and recurring investments.
Why is credit card MDR higher?
The card issuer also recovers the cost of the interest-free period it gives you, so credit card MDR is usually higher than debit card or UPI MDR.
Official sources
- PIB – UPI continues to remain free for peer to peer transactions and 96% of merchant transactions (15 Sep 2026) (accessed 31 Oct 2026)
- NPCI – FAQs on MDR on select UPI (P2M) transactions (15 Sep 2026) (accessed 31 Oct 2026)
- NPCI – UPI MDR on select merchant transactions shall be implemented post Diwali (13 Oct 2026) (accessed 31 Oct 2026)
- RBI – Rationalisation of MDR for debit card transactions (6 Dec 2017) (accessed 31 Oct 2026)
- RBI – Discussion Paper on Charges in Payment Systems (17 Aug 2022) (accessed 31 Oct 2026)
- Income Tax Department – Section 269SU and prescribed electronic modes (accessed 31 Oct 2026)
- Income Tax Department – Income-tax Act, 2025, section 187 (electronic modes of payment) (accessed 1 Nov 2026)
- Income Tax Department – Income-tax Act, 2025, section 452 (₹5,000-a-day penalty) (accessed 1 Nov 2026)
- RBI – Discussion Paper on Charges in Payment Systems, 17 Aug 2022 (no RBI mandate on credit card MDR) (accessed 1 Nov 2026)
- PIB – Cabinet approves subsidising MDR on debit card/BHIM UPI/AePS transactions up to ₹2,000 (15 Dec 2017) (accessed 31 Oct 2026)
- PIB – Incentive scheme for RuPay debit cards and low-value BHIM-UPI (15 Dec 2021) (accessed 31 Oct 2026)
- PIB – Incentive scheme for 2022–23 (11 Jan 2023) (accessed 31 Oct 2026)
- PIB – Incentive scheme for low-value BHIM-UPI transactions (P2M), 2024–25 (19 Mar 2025) (accessed 31 Oct 2026)
- PIB – Claims of GST on UPI transactions over ₹2,000 are false (accessed 31 Oct 2026)
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