Under the framework announced on 15 September 2026, covered standard UPI person-to-merchant (P2M) payments above ₹2,000 carry a merchant discount rate (MDR) of 0.4%, capped at ₹300 for transactions of ₹75,000 or more. The framework is scheduled to take effect on 15 October 2026, so as of 7 October 2026 these are announced rates, not yet an effective schedule. The merchant pays MDR to its acquiring bank; banks, payment service providers and UPI application providers are named as ecosystem recipients, but the reviewed official material does not specify each participant’s share.
How to calculate the announced standard UPI MDR
For a covered standard P2M transaction, the announced calculation is 0.4% of the transaction value when the payment is above ₹2,000. Transactions up to ₹2,000 carry no MDR. For transactions of ₹75,000 and above, the charge is capped at ₹300 per transaction. The Department of Financial Services gives these examples in its 15 September 2026 FAQ:
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| Covered transaction amount | Calculation | Announced MDR |
|---|---|---|
| ₹2,000 or less | No MDR | ₹0 |
| ₹3,000 | ₹3,000 × 0.4% | ₹12 |
| ₹5,000 | ₹5,000 × 0.4% | ₹20 |
| ₹50,000 | ₹50,000 × 0.4% | ₹200 |
| ₹75,000 | ₹75,000 × 0.4% = ₹300 | ₹300 |
| ₹1,00,000 | ₹1,00,000 × 0.4% = ₹400, limited by the cap | ₹300 |
The formula applies only after identifying the transaction and merchant category. It is not a universal UPI fee: small P2PM merchants and specified sectors have separate treatment, while credit-linked UPI follows separate mechanics.
Which UPI transactions have different treatment?
The Ministry of Finance’s 15 September 2026 release and the DFS FAQ distinguish transaction types and merchant categories. Apply the relevant category rather than assuming every payment above ₹2,000 incurs 0.4%.
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| Transaction or merchant category | Announced treatment |
|---|---|
| Person-to-person (P2P) | Free regardless of amount. |
| Ordinary P2M payment up to ₹2,000 | No MDR. |
| Small merchant in the P2PM category | Zero MDR on all transactions if monthly inward UPI credits through UPI QR are up to ₹1 lakh. |
| Specified essential and thin-margin sectors | Flat ₹5 MDR for covered transactions above ₹2,000. The release lists railways, telecommunications, insurance, fuel and agricultural inputs as examples. |
| Capital-market payments | 0.02% MDR, capped at ₹300, for payments relating to mutual funds, securities, stockbrokers and dealers. |
| RuPay credit card linked to UPI or a credit line | Do not apply the direct bank-account UPI schedule automatically; these are credit-linked arrangements with separate mechanics. |
Small P2PM merchants
The announced exemption covers small merchants receiving up to ₹1 lakh per month through UPI QR under the P2PM category. The FAQ says a payment above ₹2,000 does not, by itself, create an MDR charge while the merchant remains in this exempt tier. It also says merchants whose monthly inward UPI credits exceed ₹1 lakh for three consecutive months transition to P2M. That classification detail is from the FAQ; precise account treatment should be checked against implementing instructions.
Essential sectors and utility or education payments
The ₹5 rate is described for specified covered transactions above ₹2,000 in named essential and thin-margin categories, not for every payment made to a business in a broadly related field. The FAQ also describes detailed treatment for some utility bills and educational payments; classification depends on the categories and thresholds it assigns. Merchants should confirm the classification used by their acquirer rather than infer it from a business name alone.
Credit-linked UPI
UPI payments funded by a linked RuPay credit card or credit line are not necessarily governed by the same merchant-side terms as a direct bank-account payment. An NPCI 2022 circular describes separate credit-linked mechanics, including interchange and PSP/app reimbursement provisions at that time. It does not establish current terms for every credit-linked product.
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Who pays MDR, and can a merchant pass it to the customer?
MDR is a merchant-side ecosystem charge, not a customer fee or government tax. The Ministry of Finance says in its 15 September 2026 release that MDR is “not a charge on customers making UPI payments” and that it is “neither a tax nor a charge collected by the Government or NPCI.” The release advises banks to ensure merchants do not pass MDR to customers and prohibits app providers from imposing platform fees or hidden charges.
In the DFS FAQ’s ₹3,000 example, the merchant pays the ₹12 MDR to its acquiring bank. The official materials therefore describe the merchant as bearing the charge, while naming banks, payment service providers and UPI application providers as ecosystem participants among whom MDR is distributed. They do not say that each participant receives the same share.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How banks and payment aggregators fit into the payment chain
The acquirer is the bank that serves the merchant for payment acceptance. A payment aggregator accepts payments on a merchant’s behalf and transfers funds to the merchant; a payment gateway supplies routing or processing technology without handling funds. These are distinct roles, and a merchant may use an aggregator for transaction management, consolidation, reconciliation and support. The RBI discussion paper on payment gateways and payment aggregators explains these institutional roles as background; it is not the source of the announced 2026 rates.
For a merchant, the MDR calculation is the headline rate and applicable category rule. The actual settlement statement and contract determine how the merchant sees deductions and services in its arrangement. The reviewed official FAQ and release name recipient categories but do not provide a precise rupee or percentage allocation for the acquiring bank, other banks, aggregator or PSP, and app provider. The FAQ says the UPI and Services Steering Committee, headed by NPCI, decides operational parameters, fee distribution models and category caps; the detailed distribution mechanics were not included in the reviewed materials.
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To verify the fee applied to a payment, compare the following items with the acquirer or payment service provider’s contract and settlement records:
- Payment type: P2P, P2M, P2PM, or credit-linked UPI.
- Merchant category: whether the merchant qualifies for the P2PM exemption or a specified sector or capital-market rate.
- Transaction value: whether the payment is above ₹2,000 and, for the standard rate, whether the ₹300 cap applies at ₹75,000 or more.
- Fee line and settlement: how any MDR deduction appears in the merchant’s settlement statement and how it is reconciled.
- Contracted services: the acquiring or aggregation services covered by the agreement and any separately described charges, assessed in light of the official prohibition on passing MDR to customers or imposing hidden app fees.
- Effective date and current instructions: whether the announced schedule has taken effect and whether implementation instructions or amendments apply to the merchant’s category.
Why older zero-MDR information may conflict with the 2026 announcement
The DFS Annual Report 2025–26 says that from 1 January 2020 no charge, including MDR, was payable on RuPay debit-card and BHIM-UPI payments; it also describes government incentives for specified low-value BHIM-UPI P2M activity. NPCI’s 2019 historical MDR release covered an earlier rate schedule effective 1 October 2019. Those documents describe earlier policy periods, not the framework announced in September 2026.
The DFS FAQ and Ministry release date the new framework for 15 October 2026. As of 7 October 2026, that date is still in the future; actual implementation details may depend on subsequent official instructions or amendments.
How much activity is expected to remain unaffected?
The two official estimates describe different measures. The DFS FAQ says transactions up to ₹2,000 make up more than 95% of P2M volume. The Ministry of Finance release separately estimates that about 96% of P2M transactions remain unaffected. These are government-published figures, not independent audit findings, and should not be treated as interchangeable statistics.
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