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UPI MDR is a merchant-side fee for processing certain person-to-merchant (P2M) UPI payments. Under the Ministry of Finance framework announced on 15 September 2026, person-to-person transfers remain free, merchant payments up to ₹2,000 remain free, and qualifying small merchants retain zero MDR. A limited set of higher-value merchant payments can attract a category-based fee, while customers must not be charged it directly.
The announcement says the framework takes effect on 15 October 2026. Because that date has just passed, merchants and payment providers should check any later implementation circular before relying on operational details.
What UPI MDR means
MDR stands for merchant discount rate. It is a fee inside the payment ecosystem for processing an eligible merchant transaction. The Ministry of Finance describes it as a charge shared among participating banks, payment service providers and UPI application providers. It is not a government tax, and it is not a fee collected by the government or NPCI.
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- P2P (person to person): money sent from one individual to another. The September 2026 statement keeps these transfers free regardless of amount.
- P2M (person to merchant): a customer pays a business, shop, service provider or other accepted merchant. Only specified P2M transactions can fall within the new MDR schedule.
The government’s release says P2P transactions represent 70% of UPI transaction value. That is a published government figure, not an independently verified estimate in this article.
For readers, the key point is that scanning a shop’s QR code does not automatically create a customer fee. Eligibility depends on the transaction type, amount, merchant category and, for the small-merchant protection, the merchant’s monthly UPI QR receipts.
Announced MDR rates from 15 October 2026
The following table reflects the Ministry of Finance statement dated 15 September 2026. It applies only to specified P2M transactions and should not be read as a charge on every UPI payment above ₹2,000.
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| Transaction or merchant condition | Announced MDR | Important qualification |
|---|---|---|
| P2P, any amount | 0% | All person-to-person UPI transactions remain free. |
| P2M up to and including ₹2,000 | 0% | The statement keeps these merchant payments free. |
| Qualifying small merchant in the P2PM category | 0% on all transactions | The merchant must receive no more than ₹1 lakh per month through UPI QR in the P2PM category. |
| Specified P2M above ₹2,000, standard category | 0.4% of the transaction value | MDR is capped at ₹300 for a transaction of ₹75,000 or more. |
| Specified above-₹2,000 payment in listed essential or thin-margin sectors | Flat ₹5 | The listed sectors are railways, telecommunications, insurance, fuel and agricultural inputs. |
| Listed mutual fund, securities, stockbroker or dealer payment above ₹2,000 | 0.02% of the transaction value | Capped at ₹300. |
The standard 0.4% rate is therefore a category rule, not a universal surcharge. A payment must first be an eligible P2M transaction above ₹2,000, and the merchant must not qualify for the zero-MDR small-merchant provision. A listed sector or capital-market category can replace the standard rate.
How the standard cap works
At 0.4%, a ₹10,000 eligible transaction produces ₹40 MDR. A ₹50,000 transaction produces ₹200. At ₹75,000, 0.4% equals ₹300, and the announcement caps the fee at ₹300 for transactions at or above that value. The cap limits the MDR calculation; it does not turn the transaction into a customer charge.
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Small-merchant zero MDR
The protection is defined narrowly: a qualifying small merchant receiving up to ₹1 lakh per month through a UPI QR code in the P2PM category continues to have zero MDR on all transactions. The ₹1 lakh figure is a monthly UPI QR-receipts threshold, not a general annual turnover test. It should not be extended automatically to every business or every payment channel.
Who pays UPI MDR?
MDR is a merchant-side ecosystem fee. The ministry says banks must ensure merchants do not pass it on to customers. UPI application providers are also prohibited from imposing platform or hidden charges in connection with this framework.
That means a merchant’s settlement statement may show a deduction or an accounting entry, but the customer should not see a separate “UPI MDR” line added to the bill. If a merchant attempts to add one, the customer should ask for an itemised receipt and contact the relevant bank or payment provider through its official complaint process.
The release allocates 5% of total MDR collections to a fund intended to promote UPI acceptance by small merchants. It does not publish a precise percentage split for every bank, payment service provider or app provider, so individual settlement arrangements cannot be inferred from the headline rates.
How to work out whether a payment attracts MDR
Use this sequence before calculating a fee:
- Identify the direction of payment. A transfer to another person is P2P and remains free. A payment to a registered merchant is P2M.
- Check the transaction value. P2M payments up to ₹2,000 remain free under the announced framework. Only amounts above that threshold move to the category check.
- Confirm the merchant category. Check whether the payment is in railways, telecommunications, insurance, fuel, agricultural inputs, mutual funds, securities, stockbroking or dealing. A listed category has its own rate.
- Check small-merchant eligibility. Determine whether the merchant receives no more than ₹1 lakh per month through UPI QR in the P2PM category. If so, the statement provides zero MDR on all transactions.
- Apply the relevant formula. Use 0.4% for the standard eligible category, ₹5 for the listed essential-sector category, or 0.02% for the listed capital-market category. Apply the ₹300 cap where the applicable rate specifies one.
- Keep the payer separate from the fee. The rate may affect the merchant’s settlement, but the policy says it must not be collected from the customer.
- Record the effective date and rule version. The detailed announcement is dated 15 September 2026 and states commencement on 15 October 2026. Retain any later implementation notice supplied by the acquiring bank.
Worked examples
| Scenario | Calculation | Result under the announcement |
|---|---|---|
| Friend sends ₹20,000 to your bank account | P2P classification | No MDR. |
| Customer pays a general-category merchant ₹1,800 | Below the ₹2,000 P2M threshold | No MDR. |
| Eligible standard-category merchant receives ₹10,000 | ₹10,000 × 0.4% | ₹40 MDR from the merchant-side settlement. |
| Eligible standard-category merchant receives ₹80,000 | ₹80,000 × 0.4% = ₹320, then apply the cap | ₹300 MDR. |
| Customer pays ₹12,000 for fuel | Listed essential-sector category | ₹5 flat MDR, subject to the transaction being within the specified category rules. |
| Customer pays a securities dealer ₹100,000 | ₹100,000 × 0.02% | ₹20 MDR, below the ₹300 cap. |
| Small P2PM merchant with ₹90,000 monthly UPI QR receipts accepts ₹25,000 | Qualifying monthly-receipts condition | Zero MDR on the transaction under the small-merchant provision. |
These examples show why amount alone is not enough. The same ₹12,000 value can have different treatment depending on the merchant category and eligibility.
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MDR thresholds are not UPI transaction limits
The Ministry’s statement separates charging thresholds from security controls. Bank and UPI daily limits generally range from ₹1 lakh to ₹5 lakh by transaction category. Those limits are risk-management and security safeguards. They do not mean that a payment below the daily limit is free of MDR, nor that crossing a daily limit creates MDR.
A bank can decline or restrict a payment because of its daily risk limit even when the payment would otherwise have a zero MDR. Conversely, an eligible P2M payment can fall within a daily limit and still be assessed under the applicable merchant category.
Why the policy changed
Earlier zero-MDR and incentive context
A 2025 Cabinet release from the Prime Minister’s Office described the earlier policy environment: zero MDR applied to RuPay debit-card and BHIM-UPI transactions from January 2020, while government incentives supported low-value BHIM-UPI P2M payments. The incentive was paid to the acquiring bank and then shared with other ecosystem participants, including issuer and payment-service-provider banks and app providers.
The same release cited an NPCI rate context of up to 0.30% MDR for P2M. That is historical background and should not be presented as the September 2026 rate schedule. It also recorded incentive payouts of ₹1,389 crore in financial year 2021–22, ₹2,210 crore in 2022–23 and ₹3,631 crore in 2023–24. Those are government payments under the incentive scheme, not amounts a merchant automatically pays as MDR.
From enabling law to detailed rates
On 8 August 2026, the Ministry of Finance described a change to the Payment and Settlement Systems Act as an enabling provision. That release said any MDR would be threshold-based and that the UPI and Services Steering Committee would decide rates.
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On 15 September 2026, the ministry published the detailed select-P2M framework and the rates listed above. The two releases describe successive stages: the August statement enabled a framework, while the September statement supplied the announced categories and amounts. A Rajya Sabha Standing Committee on Finance separately recommended stakeholder consultation by NPCI and the Ministry of Finance on UPI MDR and the payment-service-provider fee structure. That recommendation is policy background, not a rate-setting order.
What the announced framework means for each participant
Customers
- Person-to-person transfers remain free.
- Merchant payments up to ₹2,000 remain free.
- A merchant or app should not add MDR, a platform fee or a hidden UPI surcharge to the customer’s bill under this framework.
- Daily transaction limits can still block or delay a payment because they are separate security controls.
Merchants
- Classify the acquiring account and QR correctly; category coding affects the rate.
- Track monthly UPI QR receipts if relying on the ₹1 lakh small-merchant condition.
- Review settlement reports for the applicable rate, cap and any zero-MDR status.
- Do not add MDR as a separate customer charge.
- Ask the acquiring bank for written implementation guidance if the settlement amount does not match the announced category.
Banks, payment providers and app providers
These participants share the ecosystem fee and must implement the category logic, customer-protection rule and small-merchant treatment. The ministry’s 5% fund contribution applies to total MDR collections, but the release does not specify each participant’s internal distribution.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Common mistakes and how to avoid them
“Every UPI payment above ₹2,000 costs 0.4%”
Incorrect. The 0.4% figure applies to specified P2M transactions in the standard category. P2P remains free, listed sectors use a flat ₹5, capital-market categories use 0.02%, and qualifying small merchants retain zero MDR.
“MDR is a government tax”
Incorrect. The ministry expressly describes MDR as a merchant-ecosystem charge rather than a tax or a charge collected by the government or NPCI.
“The ₹1 lakh rule is every merchant’s turnover limit”
Incorrect. It refers to monthly receipts through UPI QR in the P2PM category for qualifying small merchants. It is not a universal turnover definition.
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“The ₹1 lakh to ₹5 lakh daily limit is the MDR threshold”
Incorrect. Daily limits are security and risk controls. The MDR threshold in the announced schedule is tied to the P2M payment value, beginning above ₹2,000, together with category and eligibility rules.
“The old 0.30% figure is still the current rate”
Not on the evidence available here. The 0.30% figure appears in the PMO’s 2025 historical context; the 15 September 2026 Ministry of Finance release is the source for the announced 2026 schedule.
What is still worth checking
The framework is recent. The Department of Financial Services confirms that a FAQ document was posted on 15 September 2026, but the FAQ answers were not exposed in the reviewed page text. Operational details therefore depend on the ministry’s release and any subsequent circulars issued by banks, NPCI or payment providers.
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The government estimates that about 4% of merchant transactions will attract MDR and approximately 96% will remain unaffected. The release does not publish the underlying dataset or methodology, so treat those percentages as government estimates rather than an independently reproducible forecast.
Before changing prices, contracts or accounting rules, a merchant should obtain the latest written category mapping and settlement schedule from its acquiring bank. Customers should rely on the receipt and bank statement, not an informal claim that a UPI surcharge is mandatory.
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