The merchant discount rate, or MDR, is the fee a business pays to accept a digital payment. It is usually a small percentage of each sale, deducted by the merchant’s bank before the money reaches the shop’s account. If you pay ₹1,000 by card, the shop may receive ₹990 or so; the missing amount is the MDR. Customers rarely see it, but it pays for the card networks, the banks that issue cards and the companies that provide card machines and payment gateways.
What the fee is, in the RBI’s words
The Reserve Bank of India (RBI) defines MDR as the charge recovered by the acquirer from the merchant, usually deducted when the payment is settled. The acquirer is the bank or payment company that signed the merchant up and gave it a card machine, QR code or online checkout.
The RBI calls this the most common way of recovering costs in a merchant payment system. The alternative, charging the customer for each payment, is rare in India.
How MDR is split
An MDR is not one company’s income. The acquirer collects it, then shares it out. For a card payment, the RBI paper describes three parties, with the split decided by the rules of the card network:
- Interchange (to the issuer): the portion carved out of the MDR and passed to the bank that issued the customer’s card. In the RBI’s words, it compensates the issuer for its operational costs and provides it with income.
- Network fee (to the scheme): the card network, such as RuPay, Visa or Mastercard, takes a fee for running the rails between banks.
- Acquirer margin: what is left stays with the acquirer, or with a payment aggregator if one sits in between, to pay for terminals, onboarding and settlement.
The individual shares vary by network, card type and merchant category, and are not published as a single standard figure.
What the rules say
MDR is market-set for some instruments and capped or set to zero for others.
| Payment method | MDR rule |
|---|---|
| Credit cards | Not capped by the RBI. NPCI says standard credit card MDRs typically range from 1.5% to 2.5% |
| Debit cards (Visa, Mastercard) | Capped by the RBI since 2018: up to 0.90% for most merchants, lower for small merchants |
| RuPay debit cards | Zero since January 2020 |
| UPI from a bank account | Zero since January 2020; from 15 October 2026, 0.4% on merchant payments above ₹2,000, with exemptions |
| UPI using a prepaid wallet | Interchange of 1.1% on merchant payments above ₹2,000 since April 2023 |
Sources: RBI, 2022; NPCI, September 2026; PIB, March 2025. The wallet figure is covered in our UPI explainer.
The debit card caps
The RBI’s circular of 6 December 2017, effective 1 January 2018, set different debit card MDR caps by merchant size:
| Merchant | Card machine (POS) | QR code |
|---|---|---|
| Small (annual turnover up to ₹20 lakh) | Up to 0.40%, max ₹200 per payment | Up to 0.30%, max ₹200 |
| Others (turnover above ₹20 lakh) | Up to 0.90%, max ₹1,000 per payment | Up to 0.80%, max ₹1,000 |
NPCI’s September 2026 FAQs also describe debit card MDRs as “capped up to 0.90%”.
Zero MDR for RuPay debit and UPI
From January 2020, the government made MDR zero for RuPay debit cards and UPI through amendments to section 10A of the Payment and Settlement Systems Act, 2007, and section 269SU of the Income-tax Act, 1961, according to the Ministry of Finance. Banks and apps were partly compensated through a government incentive scheme instead. Our UPI pillar explains how that scheme works and why it is now being supplemented.
The new UPI MDR
From 15 October 2026, UPI person-to-merchant payments above ₹2,000 are scheduled to carry an MDR of 0.4%, capped at ₹300 for payments of ₹75,000 or more. Railways, telecom, insurance, fuel and agricultural-input payments above ₹2,000 carry a flat ₹5, and capital-market payments 0.02%. Payments up to ₹2,000, payments between people, and small merchants receiving up to ₹1 lakh a month through QR codes stay at zero, the Ministry of Finance said.
What it costs a merchant: worked examples
Here is what a ₹50,000 sale would cost under different methods, using the rules above. The credit card line uses the range NPCI cites; actual rates depend on the merchant’s contract.
| Payment of ₹50,000 by | MDR | Merchant receives |
|---|---|---|
| UPI from bank account (after 15 Oct 2026) | ₹200 (0.4%) | ₹49,800 |
| Debit card, large merchant, POS | Up to ₹450 (0.90%) | ₹49,550 or more |
| RuPay debit card | ₹0 | ₹50,000 |
| Credit card | ₹750 to ₹1,250 (1.5% to 2.5%) | ₹48,750 to ₹49,250 |
NPCI’s own examples for UPI: a ₹3,000 payment costs the merchant ₹12; a ₹1 lakh payment costs ₹300, not ₹400, because of the cap.
Because MDR is a fee for a service, GST applies to it where it is charged. DD News, reporting the government’s position on the new UPI fee, noted that payments carrying zero MDR therefore carry no GST on MDR. Registered businesses can generally claim credit for GST paid on business expenses; our guide to GST for small businesses explains the basics, and a tax professional can advise on specific cases.
Who really pays, and why shops add surcharges
On paper, the merchant pays MDR. In practice, a business can absorb it as a cost of selling, build it into its prices, or try to pass it to customers as a surcharge, such as “2% extra on cards”.
The rules limit that last option for some payment types:
- Debit cards: the RBI’s 2017 circular told banks to ensure that merchants they sign up do not pass MDR charges on to customers for debit card payments.
- UPI: NPCI says merchants cannot pass on UPI MDR to customers, and UPI apps cannot charge platform fees on payments.
- Credit cards: the RBI has not capped credit card MDR, and its 2017 no-pass-through instruction was written for debit cards. This is why surcharges are most often seen on credit card payments, where the fee is highest.
Both rules are framed as obligations on the merchant’s bank, so a customer who is charged a surcharge on a debit card or UPI payment would generally raise it with the shop first and then with that bank.
The point: MDR is the price a business pays to accept digital money, shared between the merchant’s bank, the customer’s bank and the network in between. It ranges from zero on RuPay debit cards to a few percent on credit cards, and UPI is moving from zero to a capped 0.4% on larger merchant payments. Whether customers end up paying it depends on the rules for each payment method, and on what the shop does with its prices.
Sources
- Discussion Paper on Charges in Payment Systems, Reserve Bank of India, August 2022
- Rationalisation of Merchant Discount Rate (MDR) for Debit Card Transactions, Reserve Bank of India, 6 December 2017
- Merchant Discount Rate (MDR) on Select UPI (P2M) Transactions: FAQs, NPCI, 15 September 2026
- UPI Continues to Remain Free for Peer to Peer Transactions and 96% of Merchant Transactions, Ministry of Finance via PIB, 15 September 2026
- Cabinet approves Incentive scheme for promotion of low-value BHIM-UPI transactions (P2M), PIB, 19 March 2025
- UPI transactions surge 23% to 24.07 billion in September: NPCI, DD News (IANS), 1 October 2026