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For covered standard merchant UPI payments above ₹2,000 and below ₹75,000, estimate MDR at 0.4% of the transaction. At ₹75,000 or more, the standard MDR is capped at ₹300 per transaction. But the rate does not apply to every UPI payment: merchant category, transaction type, and any gateway or service contract can change the total cost. The Department of Financial Services FAQ gives 15 October 2026 as the framework’s effective date; this article reflects the policy information available on 4 October 2026, before that date.
Start with the right MDR rule
First identify the payment type and the acquiring bank’s assigned merchant category. Do not apply the standard rate to every UPI payment.
| Payment or merchant category | Rule in the announced framework |
|---|---|
| Person-to-person (P2P) transfer | Free; no merchant MDR. |
| Merchant P2M transaction up to ₹2,000 | Zero MDR. |
| Qualifying small merchant in the P2PM category | Zero MDR on all transactions if the merchant receives up to ₹1 lakh per month through UPI QR and qualifies for that category. |
| Covered standard P2M transaction above ₹2,000 and below ₹75,000 | 0.4% of the transaction amount. |
| Covered standard P2M transaction of ₹75,000 or more | 0.4% of the amount, capped at ₹300 per transaction. |
| Specified essential or thin-margin categories, including railways, telecommunications, insurance and fuel, above ₹2,000 | Flat ₹5 MDR per transaction. |
| Specified mutual-fund, securities, stockbroker and dealer payments above ₹2,000 | 0.02% of the amount, capped at ₹300 per transaction. |
These rules concern direct UPI payments from a user’s bank account to a merchant account. Credit-linked UPI follows separate credit-product rules. The Ministry’s announcement and the official FAQ describe the framework and categories; confirm the transaction classification and merchant category with your acquiring bank before budgeting (Ministry of Finance announcement; Department of Financial Services FAQ).
Calculate the transaction-level MDR
For a covered standard P2M transaction above ₹2,000 and below ₹75,000, use:
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MDR = transaction amount × 0.004
- ₹3,000 × 0.004 = ₹12.
- ₹10,000 × 0.004 = ₹40.
- ₹50,000 × 0.004 = ₹200.
For a transaction of ₹75,000 or more, calculate 0.4% and apply the ₹300 cap. For example, ₹100,000 × 0.004 is ₹400 before the cap, so the MDR is ₹300.
Do not use this formula for a qualifying zero-MDR merchant, a transaction at or below the threshold, or one of the specified special categories. The official FAQ gives 15 October 2026 as the effective date, so as of 4 October 2026 it describes a forthcoming framework, not a rate already in effect.
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Estimate the full cost, not just MDR
MDR is only one possible cost. A gateway or aggregator may separately charge platform or service fees under its own plan or contract. Keep those charges distinct from the transaction-level MDR when calculating your expected cost.
- Classify the transactions. Separate P2P from P2M, identify any qualifying P2PM small-merchant status or special category, and determine whether payments are direct bank-account-funded UPI transactions.
- Calculate framework MDR by bucket. Group transactions by amount and applicable category, then apply the zero-MDR rule, standard rate and cap, or special-category rate as appropriate.
- Add confirmed provider charges separately. Check the written agreement and current price schedule for the fee base, applicable channel, offer eligibility and end date, settlement terms or charges, refunds, and taxes.
- Project a representative month. For each transaction bucket, multiply expected transaction count by the applicable per-transaction MDR. Add confirmed provider charges and other contractual fees for the services they cover.
- Calculate a blended effective rate if useful. Divide the estimated total cost by UPI sales volume. Use a realistic ticket-size mix; one headline percentage can misstate costs when many payments are exempt or capped.
Published provider prices illustrate why the contract matters; they are not universal rates. Razorpay’s UPI gateway page lists a standard 2% platform fee, says GST is applicable, and shows no one-time setup or annual maintenance fee on that plan (Razorpay pricing). Cashfree lists 1.95% and displays a time-limited offer for eligible new merchants; its terms describe platform fees as separate from payment-instrument fees and mutually agreed (Cashfree payment gateway charges). Confirm current terms and the fee base directly with the provider before using either figure in a forecast.
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Check category eligibility before enabling UPI
Category assignment can change the calculation more than the transaction amount does. The government says qualifying small merchants receiving up to ₹1 lakh per month through UPI QR in the P2PM category continue to have zero MDR on all transactions. A payment above ₹2,000 does not, by itself, make a qualifying P2PM merchant subject to the standard rate. Ask the acquiring bank to confirm whether it has assigned or retained your qualifying category.
Likewise, do not assume that a business qualifies for a special essential-sector or capital-market rate based only on its industry name. The bank’s merchant category and the transaction’s purpose matter. Confirm both, and keep the bank’s classification in your cost records.
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Keep merchant cost separate from customer charges
The Ministry of Finance says MDR is a charge within the merchant payment ecosystem, not a charge on customers making UPI payments. It also says banks have been advised to ensure merchants do not pass MDR on to customers. Treat MDR as a merchant-side cost in your business forecast, not as a UPI fee to add at checkout (Ministry of Finance announcement).
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Before enabling UPI, compare the costs and operational requirements for the channel you will actually use:
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- In-person QR: confirm the QR’s provider and merchant-category assignment, and whether the setup supports the reporting and reconciliation you need. Existing physical QR stands can continue to be used; a stand merely displays the QR and is not required to calculate MDR. The official FAQ covers continued use of existing stands (Department of Financial Services FAQ).
- Website or app gateway: compare the applicable platform fee, its fee base, integration and refund terms, settlement timing, and any charges for faster settlement against the written offer.
- Either route: verify MDR eligibility and caps, provider charges and taxes, settlement terms, refund handling, reporting, and reconciliation in the actual agreement.
The Ministry estimates that 96% of P2M transactions will remain unaffected and about 4% will attract MDR under the announced framework. This is the government’s estimate based on its data analysis, not an independently measured result and not a prediction of an individual merchant’s costs (Ministry of Finance announcement).
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