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NPCI Guidelines 2026: Small Merchant MDR Thresholds
Under the announced framework, merchants receiving up to Rs 1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to qualify for zero MDR on their transactions. The government says the exemption is intended to protect small businesses, including neighbourhood shops and street vendors.
Dilip Asbe, Managing Director and CEO of NPCI, noted that the proposed MDR framework would affect a minority of merchants, as approximately 75% of the 60 million unique merchants do not record UPI transactions exceeding Rs 2,000. He also highlighted the challenges of transitioning from more than six years of zero-MDR operations to a transaction-based fee structure.
The threshold relates to eligible inward UPI QR receipts, not a merchant's total receipts through every payment method. Merchants should confirm their classification with their acquiring bank or payment service provider before making assumptions about their eligibility.
Sameer Nigam, Co-founder and CEO of PhonePe, argued that India's digital payments ecosystem requires a more sustainable funding model, given the substantial annual expenditure incurred by banks and fintech companies to maintain UPI infrastructure. He highlighted the gap between estimated operating costs of Rs 10,000–Rs 12,000 crore and government subsidies of approximately Rs 2,000 crore. He also noted that around 96% of merchant payments were expected to remain unaffected under the proposed framework and compared the proposed 0.4% MDR with higher processing rates typically associated with card payments.
Proposed UPI MDR Rates and Exemptions
|
Transaction category |
Proposed MDR treatment |
|
Person-to-person (P2P) transfers |
Zero MDR |
|
Merchant payments up to Rs 2,000 |
Zero MDR |
|
Eligible small merchants under P2PM, receiving up to Rs 1 lakh monthly through UPI QR codes |
Zero MDR |
|
Standard eligible P2M transactions above Rs 2,000 |
0.4% MDR |
|
Eligible transactions of Rs 75,000 and above |
MDR capped at Rs 300 per transaction |
|
Eligible transactions in railways, telecom, insurance, fuel and agricultural inputs |
Flat Rs 5 per transaction above Rs 2,000 |
|
Eligible capital-market payments, including mutual funds and securities |
0.02% MDR, capped at Rs 300 per transaction |
Source: Ministry of Finance clarification dated September 15, 2026. These are announced framework terms; implementation has been deferred until after Diwali, with a new date to be notified separately.
The government estimates that approximately 96% of merchant transactions will remain unaffected because they fall below the Rs 2,000 threshold or qualify for zero MDR under the small-merchant framework. This estimate refers to transaction volume, not necessarily the proportion of merchants or total transaction value.
