Over 96% UPI Transactions, Small Traders Exempt From MDR: NPCI

September 22, 2026

New Delhi: The National Payments Corporation of India (NPCI) on Tuesday clarified that the new Merchant Discount Rate (MDR) framework will not impose an additional burden on the majority of small merchants or make most UPI payments costlier.

NPCI was responding to reports suggesting that the Goods and Services Tax (GST) on UPI Merchant Discount Rate could increase costs for small traders and make digital payments more expensive.

The payments body said such concerns were misplaced, as MDR applies only to person-to-merchant (P2M) UPI transactions above Rs 2,000. Transactions up to Rs 2,000 will continue to have zero MDR and therefore no GST impact on MDR.

Over 96% UPI Merchant Transactions Below Rs 2,000

According to government data cited by NPCI, transactions of up to Rs 2,000 account for more than 96% of UPI merchant transaction volume.

This means the overwhelming majority of UPI merchant payments will continue without MDR and consequently will not attract GST on MDR.

NPCI also said merchants receiving up to Rs 1 lakh per month through UPI are not liable to pay MDR. Therefore, these small merchants will not face the issue of GST on MDR either.

The clarification comes amid concerns over the impact of the revised MDR framework on small traders and businesses that rely heavily on UPI payments.

GST On MDR Can Be Adjusted Against Output Tax

NPCI further explained that even where MDR applies, the GST paid on the MDR amount can be adjusted against the GST payable on the merchant’s sales.

This works through the input tax credit mechanism, under which eligible input taxes are set off against output tax liability.

As a result, NPCI said merchants do not ultimately bear the cost of GST paid on the MDR amount, subject to the applicable GST input-tax rules.

The new framework also has no impact on person-to-person (P2P) UPI transactions. According to a Finance Ministry explainer, UPI will continue to remain completely free for person-to-person transfers, irrespective of the amount being transferred.

0.4% MDR Above Rs 2,000 For P2M Transactions

The Finance Ministry has clarified that MDR is not a tax or a charge collected by the government or NPCI. Instead, it is distributed among participants in the digital payments ecosystem, including banks, payment service providers and UPI application providers.

Under the revised framework, a nominal 0.4% MDR will apply to P2M transactions above Rs 2,000.

For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction.

Special provisions have also been introduced for essential and thin-margin sectors. Transactions above Rs 2,000 involving railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of Rs 5 per transaction.

NPCI said the revised structure is aimed at maintaining the functioning and expansion of the UPI ecosystem while keeping the impact limited for small merchants and the vast majority of digital transactions.