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From 15 October 2026, the government’s stated effective date, UPI person-to-person (P2P) transfers stay free, merchant payments up to ₹2,000 stay free, and qualifying small merchants receiving up to ₹1 lakh a month through UPI QR codes stay at zero merchant discount rate (MDR). Larger merchant payments above ₹2,000 in specified categories will attract MDR. The Finance Ministry estimates that about 4% of merchant transactions will be affected and about 96% will not.
This article explains which transactions fall where, who bears the charge, what to confirm with your payment provider before you change prices, and what the current UPI and festive-season figures do and do not tell you.
Which transactions are affected and which stay free
The Ministry of Finance’s press release of 15 September 2026, issued through the Press Information Bureau, sets out a tiered framework rather than a single rate. Whether MDR applies depends on three things: whether the payment is P2P or merchant (P2M), the transaction amount, and the business’s category. Small merchants are defined by monthly receipts through UPI QR codes, not by annual turnover.
| Transaction type | MDR under the announced framework | Cap or limit stated in the release |
|---|---|---|
| P2P transfers, any amount | Free | Not applicable |
| P2M payments up to ₹2,000 | Free | Not applicable |
| Qualifying small merchants (P2PM category) receiving up to ₹1 lakh per month through UPI QR codes, including street vendors and neighbourhood shops | Zero on all transactions | Monthly receipts threshold of ₹1 lakh |
| Other specified P2M transactions above ₹2,000 | 0.4% | ₹300 per transaction, applying to transactions of ₹75,000 and above |
| Railways, telecommunications, insurance, fuel and agricultural inputs (specified sectors) | Flat ₹5 for transactions above ₹2,000 | No cap stated in the release |
| Mutual funds, securities, stockbrokers and dealers (capital-market payments) | 0.02% | Capped at ₹300 |
The 0.4% rate and ₹300 cap are consistent with each other: 0.4% of ₹75,000 is ₹300, so the cap binds from that amount upward. Below ₹75,000, the 0.4% charge on a specified transaction is smaller than ₹300.
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The headline 0.4% is therefore not the whole picture. A grocery shop, a railway ticket counter and a brokerage each sit under different lines of the table, and the release does not describe how a given merchant’s transactions are mapped to those lines. That mapping is the first thing to confirm with your provider.
How much of the market is affected
The Ministry estimates that MDR applies to about 4% of merchant transactions and that roughly 96% remain unaffected. These are the Ministry’s own figures. Other sources reviewed for this article did not independently verify them, so attribute them to the Ministry when you quote them.
Who pays MDR and what customers should see
The Ministry describes MDR as a payment within the merchant ecosystem, shared among banks and payment service providers. It explicitly says MDR is not a tax collected by the Government or NPCI, and it is not a charge on customers. In the release’s words: “MDR is neither a tax nor a charge collected by the Government or NPCI.”
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- Banks have been advised to prevent merchants from passing MDR on to customers, for example through a surcharge at checkout.
- UPI application providers are prohibited from imposing platform or hidden fees on users.
- An amount equal to 5% of total MDR collections will go into a dedicated small-merchant UPI adoption fund.
The release does not say how these safeguards will be enforced day to day, and the framework was introduced under the Payment and Settlement Systems Act, 2007, following UPI Steering Committee deliberations. If a merchant is asked to pay a surcharge on a UPI payment after 15 October, that is a question for the acquiring bank or provider, not a settled outcome under the framework.
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What to confirm with your payment provider before changing prices
As of 9 October 2026, the detailed operational instructions for merchant category mapping, settlement and transaction edge cases were not available in the public sources reviewed. Ask your acquirer or payment provider these questions before you update checkout prices, invoices or accounting assumptions:
- Which merchant category code and transaction category apply to my business, and when will that mapping take effect?
- Do I qualify for the P2PM small-merchant exemption, and how is the ₹1 lakh monthly receipts threshold measured and administered?
- Which rate, cap and effective date will appear on my settlement statement, and will MDR be deducted from settlement or billed separately?
- How are refunds, reversals, and split or aggregated settlements treated for MDR purposes?
Do not assume an answer to these questions until your provider confirms it in writing.
What the current UPI totals show
UPI volume figures are useful for tracking the overall system. They are not a direct measure of festive retail sales, because they include P2P transfers, bill payments and other categories.
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NPCI’s product statistics page reports 24,508.96 million UPI transactions worth ₹29,82,355.95 crore for August 2026. The same page notes that its data excludes transactions with debit and credit to the same account, a rule that has applied since August 2018.
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September 2026 figures
Reporting based on NPCI data gives 24.07 billion UPI transactions worth ₹29.37 lakh crore for September 2026. The New Indian Express and Business Today both carried these figures on 1 October 2026. The New Indian Express reported average daily volume of 802 million transactions worth ₹97,913 crore, which it described as record daily averages.
Monthly totals in September were below August, but September has one fewer calendar day than August. Daily averages were higher, so the monthly dip mostly reflects the shorter month. It is not clear evidence of weakening demand, and the figures cannot be attributed to MDR, the festival season or any other single cause.
What businesses are seeing in festive spending
The festive-season evidence available at the time of writing is forward-looking. It consists of a market forecast and self-reported consumer intentions, not completed sales.
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Datum Intelligence’s online forecast
Datum Intelligence’s 2026 Festive Barometer forecasts online gross merchandise value (GMV) of ₹1,50,000–₹1,55,000 crore for the festive window, up 25–29%. The forecast says growth will come from more orders and more frequent buying, with a smaller average basket per order. It covers the Big Billion Days and Great Indian Festival window through Diwali, and Datum notes that the window’s length varies from year to year.
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The timing matters for year-on-year comparisons. According to the report, Diwali falls on 8 November 2026, compared with 20 October 2025, so this year’s festive window sits later in the calendar. A comparison of October 2025 with October 2026 can therefore understate or overstate what changed.
Datum also reports that urban household non-essential spending reached a net reading of +3.3 in July, which it describes as more than twice the previous peak and the highest in 22 survey rounds. This is Datum’s own index measure, and the public summary does not translate it into a percentage or rupee amount.
Consumer intention from the Saarva survey
The Saarva Festive Outlook Study surveyed 1,006 urban consumers online in September 2026. Its release, carried by Business Standard on 1 October 2026, reports these results:
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- 77% expect to spend more than in a regular month.
- Respondents planned to increase spending in an average of 1.3 categories, with apparel and jewellery and electronics and home as the leading category groupings.
- 82% planned to use digital payments, while only 4% said payment options influenced what they buy.
These are self-reported intentions. The survey was unweighted, and some multiple-selection questions add up to more than 100%. It describes urban consumer intent and is not a representative national sales measure. Saarva’s founder and principal consultant, Ankur Nagar, put it this way: “This festive season, consumers are spending with intent, not abandon. They will spend more, but on fewer things, and how they shop tells us far more than who they are.”
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What is not yet known
The 2026 festive season has not concluded, so season-wide merchant sales cannot yet be established. No source reviewed shows that MDR has changed consumer behaviour, and no national UPI total proves a retail-spending boom in your particular city, category or channel.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to measure your own festive season
National figures will not tell you how your business is performing. These measures from your own records will:
- Order count per week, compared with the same weeks of earlier years, adjusted for when the festival falls.
- Average basket value, since the Datum forecast expects a smaller basket even as order volume grows.
- Share of payments by UPI, split between transactions at or below ₹2,000 and those above it.
- Settlement amounts as they appear on your statement after MDR is applied, compared with your expected figures.
- Online and offline sales tracked separately, because the forecast and the national UPI figures do not describe the same channel.
Measured this way, the 15 October change becomes a question of which of your transactions fall in a charged category and how much they cost, rather than a question about the national trend.
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