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UPI MDR is a merchant-side fee for payment acceptance and processing; it is not a tax. The Ministry of Finance says UPI customers are not to be charged MDR. As of 4 October 2026, the Department of Financial Services’ FAQ says its newly announced rates are due to take effect on 15 October 2026, so they are not yet effective on this article’s date.
What is UPI MDR?
MDR stands for Merchant Discount Rate. It is a fee associated with accepting and processing a digital payment. For UPI person-to-merchant (P2M) payments—when a customer pays a business—the Ministry says MDR is shared among payment ecosystem participants. It is not money collected as a tax by the Government or NPCI.
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A UPI person-to-person (P2P) transfer is a payment between people, rather than a customer paying a business. The announced framework keeps P2P transfers free.
What UPI MDR rates are announced?
The Department of Financial Services FAQ dated 15 September 2026 says the provisions below are scheduled to begin on 15 October 2026. As of 4 October 2026, these are announced future-effective terms.
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| Transaction category | Announced treatment from 15 October 2026 |
|---|---|
| Specified general P2M transaction above ₹2,000 | 0.4% of the transaction |
| Transaction of ₹75,000 or more under that percentage treatment | Capped at ₹300 per transaction |
| Specified essential or thin-margin sectors above ₹2,000, including railways, telecommunications, insurance, fuel and agricultural inputs | Flat ₹5 per transaction |
| Capital-market payment | 0.02%, capped at ₹300 |
| P2M payment of ₹2,000 or less | No MDR under the announced framework |
| P2P transfer | Free under the announced framework |
| Qualifying P2PM small merchant | Zero MDR under the described exemption, including when a particular payment exceeds ₹2,000 |
The FAQ illustrates the percentage calculation with these examples: ₹3,000 × 0.4% = ₹12; ₹50,000 × 0.4% = ₹200; and a transaction of ₹75,000 or more is subject to the stated ₹300 maximum. These are the FAQ’s examples, not a guarantee of an individual merchant’s invoice; the merchant’s category and account terms matter.
Who pays UPI MDR?
Under the Ministry’s stated policy, MDR is borne within the merchant payment ecosystem, not by the UPI customer. The FAQ’s worked example says the merchant pays the fee to its acquiring bank. The Ministry says the proceeds are distributed among ecosystem participants, including banks and payment application providers.
The exact percentage split among participants is not established in the cited official materials. The FAQ places operational parameters and distribution models with the UPI and Services Steering Committee headed by NPCI.
Will I be charged for paying by UPI?
The Ministry says customers should not be charged MDR and directs merchants not to pass it on to UPI customers. It says P2P transfers remain free and consumer payment charges are not being introduced. The Ministry estimated that approximately 96% of P2M transactions would remain unaffected; that figure is the Ministry’s estimate, not an independently recalculated statistic.
Does MDR apply to a UPI payment above ₹2,000?
Not automatically. The announced general rate applies to specified P2M transactions above ₹2,000, but the treatment also depends on the merchant’s category and the type of payment. Listed sectors have distinct terms, and qualifying P2PM small merchants are described as exempt even when a particular payment is above ₹2,000. The threshold alone does not determine the fee.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Do small merchants have to pay UPI MDR?
The FAQ describes P2PM merchants as small vendors receiving up to ₹1 lakh per month through UPI QR codes. Merchants meeting that classification are described as continuing at zero MDR. A single payment above ₹2,000 does not by itself remove the exemption if the merchant is operating under the exempt P2PM classification.
Merchants should ask their acquiring bank or payment aggregator to confirm the classification on their account and any applicable account fees. The Government FAQ does not establish an individual provider’s separate service charges. Existing UPI QR stands and soundboxes do not need replacement or re-registration under the FAQ.
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A Cabinet-approved Government scheme for FY 2024–25 described zero MDR for UPI P2M transactions under that scheme’s terms. It also provided a 0.15% incentive for small-merchant UPI payments up to ₹2,000; large merchants did not receive that incentive. That earlier arrangement is historical context, not the rate structure announced for 15 October 2026.
The Government reported BHIM-UPI incentive payouts of ₹957 crore in FY 2021–22, ₹1,802 crore in FY 2022–23 and ₹3,268 crore in FY 2023–24. Those are Government-reported amounts for the specified financial years, and the earlier release does not establish the exact sharing formula for the newly announced MDR framework.
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