UPI MDR from 15 October 2026: What Merchants and Consumers Need to Know
From 15 October 2026, UPI stays free for individuals, but merchants will pay a Merchant Discount Rate (MDR) on select payments above ₹2,000.
In short
All person-to-person (P2P) transfers stay free, whatever the amount.
Merchant payments up to ₹2,000 stay free. Small merchants receiving up to ₹1 lakh a month through UPI QR continue with zero MDR.
Above ₹2,000, MDR is 0.4% (capped at ₹300), a flat ₹5 for essential sectors, and 0.02% (capped at ₹300) for capital market payments.
Customers are not charged. Merchants cannot pass MDR on to them.
What is MDR, and why is it in the news?
MDR is the fee a merchant pays to its acquiring bank or payment service provider for processing a digital payment. The Government introduced zero MDR for RuPay debit cards and UPI from 1 January 2020 to speed up digital payment adoption.
On 15 September 2026, the Ministry of Finance announced a new framework under the Payment and Settlement Systems Act, 2007. It follows deliberations by the UPI Steering Committee and takes effect from 15 October 2026.
MDR is neither a tax nor a charge collected by the Government or NPCI. It is shared among the payment ecosystem: banks, payment service providers and UPI app providers.
What stays free
About 96% of merchant (P2M) transactions will not be affected, because they are either up to ₹2,000 or covered by the zero-MDR framework for small merchants.
P2P transfers: Sending money to family, friends or your own accounts is free for any amount. No platform fee or other charge can be levied on individuals. P2P transactions account for about 70% of the total UPI transaction value.
Merchant payments up to ₹2,000: No MDR, so tea stalls, local transport and everyday shopping are not affected.
Small merchants (P2PM): Street vendors and neighbourhood shops receiving up to ₹1 lakh a month through UPI QR continue with zero MDR on all transactions, even above ₹2,000. GST registration is not required to qualify.
UPI AutoPay and mandates: Recurring payments such as utility bills, OTT subscriptions and investments do not carry MDR.
No usage limits: There are no monthly quotas or tiered caps on free UPI use. The daily limits of ₹1 lakh to ₹5 lakh set by banks and NPCI are risk controls, not charging thresholds.
What attracts MDR
MDR applies only to specified merchant (P2M) payments above ₹2,000. Payments of ₹2,000 or less carry no MDR, even for large businesses.
Payment above ₹2,000 | MDR |
General merchants | 0.4% of the payment, capped at ₹300 per transaction (for payments of ₹75,000 and above) |
Railways, telecom, insurance, fuel, agricultural inputs | Flat ₹5 per transaction |
Electricity, water and piped natural gas bills | Flat ₹5 per transaction |
Mutual funds, securities, stockbrokers and dealers | 0.02% of the payment, capped at ₹300 per transaction |
Educational fees | Flat or capped rate, as set by the framework |
The rates and category caps are decided by the UPI Steering Committee headed by NPCI. The Ministry's FAQs do not give the exact education rate, so check with your acquiring bank before assuming a figure.
How much will a merchant pay?
On a general merchant payment, MDR rises with the amount until ₹75,000 and then stays at ₹300. The chart below shows all three rate types.
Worked examples (general merchants)
Amount paid to merchant | Applicable MDR | MDR paid by merchant |
₹2,000 | Nil | ₹0 |
₹3,000 | 0.4% | ₹12 |
₹50,000 | 0.4% | ₹200 |
₹75,000 and above | Fixed cap | ₹300 |
For a ₹1,00,000 sale, 0.4% would work out to ₹400, but the fee stops at the ₹300 cap. MDR is paid by the merchant to its acquiring bank. It is not deducted from the customer.
How does it compare with card payments?
UPI will still be cheaper for merchants than cards. The Ministry of Finance notes that standard credit card MDR typically ranges from 1.5% to 2.5%, and debit card MDR is capped up to 0.90%. UPI MDR is 0.4% and is capped at ₹300 for high-value payments.
The rupee figures above are our own illustration of those published percentages on a ₹50,000 sale. Actual card MDR varies by bank and merchant category.
UPI payments made through RuPay credit cards linked to UPI, or through pre-sanctioned credit lines, follow credit product rules and are outside this MDR framework.
Small merchants and the P2PM rule
Small merchants that receive up to ₹1 lakh a month through UPI QR directly into their bank account fall under the Person-to-Person-Merchant (P2PM) category created by NPCI. They continue with zero MDR on every transaction, including payments above ₹2,000.
No change to QR codes: Existing QR codes and soundboxes continue to work. Merchants need not replace or re-register them.
How banks identify you: Acquiring banks monitor monthly UPI inflows. A merchant receiving more than ₹1 lakh a month for 3 consecutive months moves to the P2M category, and MDR then applies to payments above ₹2,000.
Rural and semi-urban shops: Zero MDR applies to P2PM merchants in these areas too.
Dedicated fund: An amount equal to 5% of total MDR collections will go into a fund to promote UPI among small merchants, mainly in Tier 3 to Tier 6 centres, the North-East, Jammu and Kashmir and Ladakh. The detailed framework is to be finalised with the RBI within three months.
Why has MDR been introduced now?
The Government says UPI cannot depend on subsidies alone. UPI processed 2,451 crore transactions worth ₹29.9 lakh crore in August 2026, and industry estimates put the annual cost of running it at about ₹20,000 crore.
The Standing Committee on Finance, in its 32nd Report (presented to Lok Sabha on 12 March 2026), recorded the following:
The Department of Financial Services told the Committee that zero MDR makes the UPI ecosystem financially unsustainable.
The incentive scheme for RuPay debit cards and low-value UPI payments has an allocation of ₹2,000 crore for 2026-27. It covers only about 11% of the industry's costs and 14% of the potential MDR collections.
Transactions above ₹2,000 make up about 67% of UPI transactions by value, and the ecosystem already bears their cost.
The Committee recommended that the Department explore a self-reliant, tiered revenue model, so that UPI achieves financial sustainability without perpetually straining the exchequer.
The new framework keeps free the payments that matter most to individuals and small businesses, and charges only larger merchant payments. The revenue is meant for infrastructure, cybersecurity, fraud detection and customer service, including in rural and semi-urban areas.
What business owners should do now
If you accept UPI payments, review five points before and after 15 October 2026.
Two practical notes:
Pricing: Merchants cannot pass MDR on to customers when accepting UPI, so it has to be absorbed in your margin. Do not add a surcharge for UPI payments.
Bookkeeping: Treat MDR as a payment processing cost in your books and reconcile it against your bank settlement statements every month. The Ministry's documents do not cover the GST or income-tax treatment of MDR, so check this with your tax consultant.
Frequently asked questions
Will I be charged when I pay through UPI?
No. Consumers pay no charge for UPI payments, whether to a person or to a merchant, and UPI apps cannot levy platform fees.
Will I pay extra when I scan a QR code at a local shop or street vendor?
No. The customer side of a QR payment carries no fee, whatever the amount. Merchants cannot pass MDR on to customers, so you pay the posted price.
I run a small shop. Will I pay MDR on a payment above ₹2,000?
Not if you are a P2PM merchant receiving up to ₹1 lakh a month through UPI QR. If your monthly UPI inflow stays above ₹1 lakh for 3 consecutive months, you move to the P2M category and MDR applies to payments above ₹2,000.
Does MDR apply to UPI AutoPay, SIPs and subscriptions?
No. UPI mandates and AutoPay for utility bills, OTT subscriptions and recurring investments do not carry MDR.
Does MDR apply to credit cards linked to UPI?
No. RuPay credit cards linked to UPI and pre-sanctioned credit lines follow credit product rules. This MDR applies to direct account-to-merchant UPI payments.
Who decides these rates, and where can I verify updates?
The UPI Steering Committee, headed by NPCI, decides the operational parameters and category caps. Rely only on official updates from the Ministry of Finance, the Reserve Bank of India, NPCI or the Press Information Bureau, and do not forward unverified messages.
Need help with your business?
If you want to check how the new MDR framework affects your pricing, books or merchant category, get in touch with Anjanadri H R – Business & Tax Consultants. We help businesses with income tax, GST, MSME registration, GeM portal registration, company registration and financial planning.
Sources
Ministry of Finance, Frequently Asked Questions on Merchant Discount Rate (MDR) on Select UPI (P2M) Transactions, 15 September 2026.
Press Information Bureau, Ministry of Finance, "UPI Continues to Remain Free for Peer to Peer Transactions and 96% of Merchant Transactions", Release ID 2310586, 15 September 2026.
Standing Committee on Finance (2025-26), Thirty-Second Report on Demands for Grants 2026-27, Department of Financial Services, Lok Sabha Secretariat, March 2026 (paragraph 4.23 and Recommendation 6).
Disclaimer: This article is for general information only and is based on the documents listed above as on 11 October 2026. It is not professional advice. Rates, categories and operational details may be revised by the competent authorities, so please verify with your bank or consult a professional before acting.
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