UPI MDR 2026 street vendor exemption

By Arun K | Last Updated : 17 September 2026, 09:55 PM IST
paytm shopkeeper

In September 2026, the National Payments Corporation of India (NPCI) and the Central Government introduced a revised Merchant Discount Rate (MDR) structure for UPI transactions taking effect on October 15, 2026. While media headlines announced a 0.4% MDR on select Person-to-Merchant (P2M) payments above ₹2,000, street food vendors remain entirely exempt from these charges due to structural safeguards:

Quick Read

0.4% MDR on Payments Above ₹2,000: Only large merchants receiving single transactions over ₹2,000 pay a 0.4% MDR (capped at ₹300 per transaction).

Exemptions for Essential Sectors: Sectors like railways, telecom, and fuel pay a flat ₹5 fee per transaction over ₹2,000 instead of 0.4%.

No Fee for Consumers: MDR is exclusively a merchant-side fee. NPCI explicitly bans apps and merchants from passing this cost to end customers.

 

P2M Payments ≤ ₹2,000

 0.0% (Zero MDR) Fully Exempt: Over 95% of micro-vendor sales (chai, snacks, fast food) fall well below the ₹2,000 threshold.
P2PM Small Merchant Tier 0.0% (Zero MDR) Fully Exempt: Merchants earning up to ₹1 Lakh/month under the Person-to-Person-Merchant framework pay zero MDR, even on individual transactions over ₹2,000.
P2PM Large Merchant Tier Payments> ₹2,000 0.4% (Capped at ₹300) No Impact: Applies strictly to larger retail entities and high-value checkouts.

 

Furthermore, NPCI explicitly prohibits payment providers from adding platform fees or permitting merchants to pass MDR costs onto the customers. As a result, the roadside digital ecosystem continues to run completely fee-free for both buyers and street sellers.

 

This fee structure keeps everyday commerce moving without squeezing small vendors. Walk up to any street stall, scan a QR code for a ₹20 cup of tea, and neither you nor the seller pays a extra paisa. The system deliberately targets large commercial volume instead of small business income.

 

Banks and payment aggregators absorb the operational costs for these small transactions because high usage drives the whole network. When bigger stores absorb the small 0.4% fee on major purchases, it subsidizes the system for everyone else. Small shops keep every rupee they earn, keeping cash flowing through digital channels without forcing merchants back to physical paper notes.