Possible Misconceptions
The ₹2000 figure often refers to ongoing government subsidies for low-value UPI person-to-merchant (P2M) transactions under ₹2000, aimed at small merchants with zero MDR and incentives like 0.15% per transaction. Budget 2026 allocated ₹2000 crore for these subsidies, but they do not cap user limits.
No new UPI rule imposes a ₹2000 transaction limit as of February 2026. Standard UPI limits remain at ₹1 lakh per day and per transaction for most users, set by NPCI and individual banks.
Possible Misconceptions
The ₹2000 figure often refers to ongoing government subsidies for low-value UPI person-to-merchant (P2M) transactions under ₹2000, aimed at small merchants with zero MDR and incentives like 0.15% per transaction. Budget 2026 allocated ₹2000 crore for these subsidies, but they do not cap user limits.
Merchants do not pay Merchant Discount Rate (MDR) on standard UPI person-to-merchant (P2M) transactions from bank accounts, keeping them free. However, they may incur platform fees from payment gateways and interchange fees for specific cases like PPI wallets or credit cards.
Standard Charges
UPI P2M payments from bank accounts have 0% MDR due to government policy since 2020. Small merchants get a 0.15% incentive (not a charge) for transactions up to ₹2000, funded by the government.
When Merchants Pay
- PPI/Wallets: Interchange fees up to 1.1% on transactions over ₹2000 (e.g., 0.5% fuel, 0.9% supermarkets); small merchants often exempt.
- RuPay Credit Card UPI: 1.1-2% MDR plus platform fees.
- Payment Gateways: Separate processing fees (e.g., 2% cap) for security and settlements, regardless of MDR.
| Payment Type | MDR/Interchange | Applies To |
|---|---|---|
| Bank Account UPI | 0% | All merchants |
| PPI > ₹2000 | 0.5-1.1% | Medium/large merchants |
| Credit Card UPI | 1.1-2% | All |
Key Updates (2026)
Government extended subsidies for low-value UPI via ₹1500-2000 crore schemes, ensuring zero MDR for small merchants. Merchants must comply with KYC/QR rules but face no new broad fees on basic UPI.
Differences between small medium and large merchant MDR categories
No new universal MDR categories differentiate small, medium, and large merchants for standard UPI P2M bank transactions in 2026—they remain 0% across all sizes due to government policy.
MDR Applies Only to Specific UPI Types
Categories matter mainly for PPI (wallets) and credit card UPI, where small merchants often get exemptions or lower interchange fees on low-value transactions.
- Small merchants (typically annual turnover < ₹20 lakh) qualify for zero MDR or subsidies on transactions ≤ ₹2000 via government schemes.
- Medium/large merchants (higher turnover) pay 0.5-1.1% interchange on PPI > ₹2000 or 1.1-2% on RuPay credit UPI.
Category Differences
Legacy RBI card payment caps (pre-UPI focus) set 0.4% MDR for small vs. 0.9% for others, but UPI overrides this with zero MDR policy. Small merchants benefit most from 2026 subsidies (₹2000 crore allocation).
Can small merchants pass MDR charges to customers
No, small merchants cannot legally pass on MDR charges directly to customers for UPI or card payments in India.
RBI Prohibition
The Reserve Bank of India (RBI) mandates that merchants absorb MDR costs without surcharging customers, especially for small businesses (turnover ≤ ₹20 lakh/year). Violations allow customers to file complaints via RBI’s portal under “MDR levied by merchant.”
Exceptions and Practices
- Convenience Fees: Online platforms/gateways may add small fees (e.g., ₹10 + GST on gateway charges), but not direct MDR on the full amount.
- Indirect Passing: Some merchants hike MRPs or request separate UPI payments for fees, but this risks RBI action.
- UPI Specific: Zero MDR policy for bank UPI P2M reinforces no customer charges; applies uniformly.
| Scenario | Allowed? | Example |
|---|---|---|
| Direct MDR Surcharge | No | “Pay 2% extra for UPI” |
| Convenience Fee (Gateway) | Limited | ₹10 on ₹1000 purchase |
| Price Increase | Yes, but indirect | Higher MRP for all |
Small merchants benefit from subsidies (e.g., 0.15% incentive on ≤ ₹2000 UPI), reducing their burden further.
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