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UPI MDR is a merchant-side charge that may apply to certain eligible business payments; under the Ministry of Finance’s framework described on 15 September 2026, it is not meant to be passed on to the customer. The amount, if any, depends on the transaction type, amount, and merchant or sector category. Person-to-person transfers are treated separately and remain free at any amount under the same guidance.
What UPI MDR means
MDR stands for Merchant Discount Rate. It is a charge within the merchant payment ecosystem. The Ministry of Finance says it is distributed among participants such as banks, payment service providers, and UPI application providers. The Ministry also states: “It is clarified that MDR is neither a tax nor a charge collected by the Government or NPCI.”
This explanation reflects the government framework described in the Ministry of Finance’s release of 15 September 2026. The rules and rates are policy details that can change; the rates below are the figures in that release, rather than an independent review of the underlying legal notification or operational circulars.
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For eligible merchant-side transactions, the merchant payment ecosystem bears the MDR under the described framework. The Ministry says banks have been advised to ensure merchants do not pass the charge on to customers. It also says UPI application providers must not impose platform fees or hidden charges. In practical terms, a shop should not add an MDR surcharge to your UPI bill under this guidance.
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The charge is not the same as a fee a customer pays simply for using UPI. Government guidance says individuals must not be charged transaction, platform, or other fees for sending or receiving person-to-person UPI money.
Which transactions may have MDR under the September 2026 framework?
UPI transactions are not all treated alike. First distinguish a person-to-person (P2P) transfer from a person-to-merchant (P2M) payment. For P2M, the amount, merchant classification, and applicable sector category determine the treatment described by the Ministry.
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| Transaction or category | Framework described on 15 September 2026 | What it means for the customer |
|---|---|---|
| P2P transfer, any amount | Free; no transaction, platform, or other charge may be imposed on individuals for sending or receiving UPI money. | No UPI fee under the Ministry’s stated guidance. |
| P2M payment up to ₹2,000 | Zero MDR. | Customer is not charged MDR. |
| Eligible P2PM small merchant | Zero MDR on all transactions for a small merchant, including a street vendor, receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category. | Customer is not charged MDR. This exemption depends on the merchant meeting the P2PM classification and eligibility conditions. |
| Specified general P2M transaction above ₹2,000 | General MDR of 0.4%; for transactions of ₹75,000 and above, the cap is ₹300 per transaction. | The merchant-side ecosystem bears the eligible charge; it is not to be passed to the customer. |
| Listed essential or thin-margin sector, above ₹2,000 | Flat ₹5 per transaction for named sectors including railways, telecommunications, insurance, fuel, and agricultural inputs. | The applicable merchant-side charge is not to be added to the customer’s bill as MDR. |
| Described capital-market payments | 0.02%, capped at ₹300 per transaction, for payments relating to mutual funds, securities, stockbrokers, and dealers. | The customer is not to be charged MDR under the stated guidance. |
The percentages, flat amount, and cap are the Ministry of Finance figures in its 15 September 2026 release. The general rate should not be applied automatically to every business payment above ₹2,000: category and sector matter, and the stated P2PM exemption is limited to qualifying merchants.
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- Ask whether the extra amount is being described as MDR, a platform fee, or something else, and request an itemised bill.
- Point out that the Ministry of Finance’s 15 September 2026 guidance says MDR should not be passed on to customers and says UPI app providers must not impose platform fees or hidden charges.
- If you are the merchant, check the acquiring bank or payment service provider’s transaction statement and confirm the merchant category, transaction type, and applicable current operational rules before treating a debit as valid.
The government release does not settle every operational edge case, including mixed-category merchants, transaction aggregation, reversals, and disputes. Those cases may require checking the current operational circulars or asking the acquiring provider to explain the transaction-level classification.
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Is UPI MDR the same as GST?
No. MDR is a payment-system charge; it is not itself a government tax. A PIB clarification dated 18 April 2025 rejected the then-circulating claim that GST was being levied on UPI transactions above ₹2,000, and said GST is levied on charges such as MDR. That 2025 clarification is historical context, not a substitute for the later September 2026 framework.
The 2025 statement does not by itself determine how GST applies to an individual merchant’s invoice or whether that merchant can claim input tax credit. Those outcomes depend on the applicable tax rules and the merchant’s circumstances; verify them for the relevant date rather than treating the MDR rate as a GST rate.
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Why older explanations may say all UPI payments are zero-MDR
A PIB clarification in April 2025 described MDR as removed for prescribed P2M UPI modes, effective from January 2020. The Ministry of Finance’s release of 8 August 2026 later described an enabling amendment to the PSS Act and said any future MDR would apply only to limited, threshold-based merchant transactions. Its 15 September 2026 release describes the later framework covered here. Therefore, the blanket 2025 description should not be read as the current universal rule.
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