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As of 13 October 2026, the Department of Financial Services (DFS) says a new merchant discount rate (MDR) schedule is due to begin on 15 October 2026. It is not a charge on every UPI payment: the announced 0.4% rate applies to covered person-to-merchant (P2M) transactions above ₹2,000, subject to a ₹300 per-transaction cap from ₹75,000. The merchant pays the MDR to its acquiring bank and cannot pass it on to the customer. Person-to-person transfers and qualifying small P2PM merchants are treated differently.
What changes on 15 October 2026?
The DFS, Ministry of Finance, published an FAQ on 15 September 2026 describing a threshold-based MDR framework for select UPI merchant payments. At the 13 October 2026 publication cutoff, the stated start date is still two days in the future. Treat the schedule below as announced and scheduled, not as a charge already in force on 13 October.
MDR is a fee associated with accepting a covered merchant payment. In the DFS FAQ, the merchant pays it to the acquiring bank. It is not a general UPI fee deducted from every customer transfer, nor does the FAQ authorize a shop to add the MDR to a customer’s bill. The framework distinguishes transaction type, merchant classification, amount, and some industry categories.
What is the announced fee schedule?
| Transaction or account category | DFS FAQ treatment scheduled from 15 October 2026 |
|---|---|
| Covered standard P2M payment of ₹2,000 or less | No MDR, including for established commercial entities. |
| Covered standard P2M payment above ₹2,000 and below ₹75,000 | 0.4% MDR, paid by the merchant to its acquiring bank. |
| Covered standard P2M payment of ₹75,000 or more | 0.4% MDR subject to a cap of ₹300 per transaction. |
| Qualifying P2PM small merchant | Zero MDR while the account remains in the described exempt tier. |
| Certain sectors, including railways, telecom, insurance, and fuel | Flat ₹5 MDR on transactions above ₹2,000. |
| Capital-market transactions | 0.02%, capped at ₹300. |
| P2P transfer between people | Free to both payer and beneficiary under the FAQ. |
| Credit-linked UPI, including a RuPay credit card linked to UPI or a bank credit line | Separate credit-product rules apply; the FAQ’s direct account-to-account schedule does not establish the applicable charge. |
The standard-rate examples in the DFS FAQ show how the percentage and cap interact: a ₹3,000 payment works out to ₹12, a ₹50,000 payment to ₹200, and a ₹1,00,000 payment to ₹300 after the cap. The cap applies at ₹75,000 and above, where 0.4% would otherwise reach or exceed ₹300. These are examples of MDR under the announced schedule, not provider quotes.
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The FAQ says more than 95% of total UPI P2M transaction volume is ₹2,000 or less. That is DFS’s published statistic; it does not mean every merchant has the same transaction mix or that every payment above the threshold will incur MDR. Account classification and transaction type still matter.
Who pays, and can a shop add a UPI surcharge?
For covered transactions, the merchant pays MDR to its acquiring bank. The DFS FAQ says onboarded merchants cannot pass the charge on to customers when accepting UPI. In practical terms, a merchant should not add an extra amount to a customer’s bill simply because the customer chooses UPI. The fee is part of the merchant’s acceptance cost under the framework.
The distinction matters because “UPI fees” can refer to different things. The schedule is about MDR for specified merchant transactions; it does not say that a customer owes a fee for an ordinary P2P transfer. Nor does it determine the price of a merchant’s separate service or hardware agreement. If an amount appears on a merchant statement, ask the provider to identify whether it is MDR under the schedule or a separate contractual charge.
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Does the rule charge every merchant or every payment above ₹2,000?
No. The FAQ describes different treatment for P2P, P2M and P2PM small merchants, as well as special transaction categories. In particular, one payment above ₹2,000 does not, by itself, make an account in the exempt P2PM tier liable for MDR. The FAQ says classification is relevant, so merchants should not determine their status from payment size alone.
Qualifying P2PM small merchants
The FAQ describes P2PM vendors receiving up to ₹1 lakh per month through UPI QR directly into their accounts as zero-MDR. It also describes a transition to P2M classification when a merchant exceeds ₹1 lakh in monthly inward UPI credits for three consecutive months. The threshold is about inward UPI credits and the stated consecutive-month condition—not simply whether a single sale crosses ₹2,000.
Those thresholds do not substitute for confirmation of an individual account’s status. The acquiring bank or provider can tell the merchant how the account is classified and whether it remains in the P2PM tier. Ask for that answer in writing, especially if monthly receipts are near the stated limit or the merchant operates multiple payment channels.
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Special industry and capital-market categories
The DFS FAQ identifies railways, telecom, insurance and fuel among sectors with a flat ₹5 MDR on transactions above ₹2,000, and gives capital-market transactions a separate percentage rate and cap. These treatments are not the standard P2M percentage schedule. A business should have its acquiring bank confirm the merchant category code (MCC) and the rate it will apply; a sector label used informally by a business may not be enough to establish the payment classification.
Credit-linked UPI is another separate case. The FAQ says transactions using credit products—including RuPay credit cards linked to UPI and bank credit lines—follow separate credit-product rules rather than the direct account-to-account schedule. A merchant should obtain the applicable terms for the specific product and acceptance setup instead of assuming either the standard P2M rate or zero MDR.
Why older pages say UPI is free for merchants
Historical policy helps explain the apparent contradiction. The DFS annual report says that, effective 1 January 2020, no charge including MDR was payable on payments using RuPay debit cards and BHIM-UPI. It also describes later incentive schemes for RuPay debit-card and low-value BHIM-UPI P2M transactions. That history is why older explanations may describe UPI acceptance as free for merchants.
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The September 2026 DFS FAQ is a later announcement: it describes a prospective, threshold-based framework for select P2M payments beginning 15 October 2026. The historical statement and the announced future schedule refer to different dates and policies. A September 2026 DFS press release is titled “UPI Continues to Remain Free for Peer to Peer Transactions and 96% of Merchant Transactions.” Its headline is consistent with continued free treatment for P2P and many merchant payments, but the title alone does not establish how the 96% figure was calculated. The FAQ provides the thresholds and categories.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What other costs can a merchant face?
The MDR schedule does not set the price of onboarding, a soundbox, QR display, payment aggregator, software, settlement service, or support contract. Those terms can depend on the acquiring bank or provider and the merchant’s agreement. Do not assume that “zero MDR” means every part of accepting payments is free, or that a quoted service fee is MDR.
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NPCI’s merchant FAQ says merchants should partner with an acquiring bank to enable UPI. It lists QR, intent, application-based and collect modes, and says the acquirer provides the UPI infrastructure. It describes settlement as immediate after customer confirmation into a merchant pool or bank account, subject to the merchant’s agreement. The actual arrangement should therefore be checked against the merchant’s contract rather than inferred from the MDR schedule.
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NPCI says the acquiring bank provides the MCC during onboarding. Request an itemized written quote from the acquirer or provider that separates any transaction MDR from setup, device, software, settlement and support charges. Ask which MCC and P2PM/P2M classification are attached to the account, how the rate is applied, and how charges will appear on statements.
How to check your likely cost before accepting payments
- Identify the account and transaction type. Ask whether the account is classified as P2PM or P2M, whether the payment is direct account-to-account or credit-linked, and which MCC the acquirer has assigned.
- Confirm the applicable date and threshold. For the schedule described by DFS, the announced effective date is 15 October 2026. Confirm whether any implementation notice or account-specific instruction changes the treatment before relying on a quote.
- Ask how the rate applies to your category. Have the acquirer confirm whether the standard percentage, a sector-specific flat rate, the capital-market rate, or another credit-product rule applies. Do not infer the category from the payment amount alone.
- Request the full commercial terms in writing. Separate MDR from recurring or one-time provider charges, hardware, QR services, settlement and support. The DFS schedule does not establish those provider prices.
- Check settlement and reconciliation details. Confirm which account receives funds, when settlement occurs under your agreement, and how the provider identifies each fee on statements.
Choosing a UPI acceptance setup
A merchant comparing acceptance options should look beyond the headline MDR percentage. The meaningful comparison is between the merchant’s classification and MCC, payment type, threshold and start date; any applicable percentage, flat fee or cap; and the provider’s separate commercial and settlement terms. Also compare the integration mode—QR, intent, app-based or collect—against the way customers pay and the business reconciles receipts.
The cited official material does not establish provider-specific prices, hardware costs, or a universal settlement arrangement, so it cannot support a price ranking among providers. Get equivalent written quotes and compare the same categories side by side. That avoids treating an MDR schedule as a complete price list.
Displaying a QR code
A physical QR standee or countertop holder is an optional way to display the merchant’s own approved QR. It does not create a UPI connection, payment account, or terminal. NPCI lists QR as an acceptance mode, and the DFS FAQ says existing QR stands continue to work without replacement under the described framework. Use the QR supplied or approved through the merchant’s acquirer rather than replacing it with an arbitrary code.
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