The Tool Desk
Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →India’s announced UPI merchant discount rate (MDR) framework takes effect on 15 October 2026. It does not introduce a fee for every UPI payment: person-to-person transfers remain free, merchant payments up to ₹2,000 remain zero-MDR, and qualifying small merchants in the P2PM category remain exempt on all UPI QR transactions if their monthly receipts are within ₹1 lakh. For other eligible merchant payments above ₹2,000, the announced standard MDR is 0.4%, subject to a ₹300 cap; specified sectors have different rates.
Timing matters: the schedule is announced but is not yet in force as of 7 October 2026. A fee shown before 15 October should not automatically be attributed to this framework.
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What MDR means for a UPI payment
MDR is a merchant-side payment-processing deduction shared among payment-system participants, including banks and payment application providers. The Ministry of Finance says it is neither a tax nor a charge collected by the Government or NPCI. Under the announced policy, it is not meant to become a surcharge added to the buyer’s bill. The Ministry’s 15 September 2026 announcement says banks have been advised to ensure MDR is not passed on to customers, and that UPI app providers may not impose platform or hidden charges for these payments.
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The applicable treatment depends on whether a payment is person-to-person or person-to-merchant, its amount, the merchant’s classification, and the merchant category. These are the announced treatments from 15 October 2026:
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| Payment or merchant category | Announced MDR | How it applies |
|---|---|---|
| Person-to-person (P2P) | Free, regardless of amount | A transfer to another person is outside this merchant MDR schedule. |
| Person-to-merchant (P2M), up to and including ₹2,000 | Zero | The merchant does not incur the new MDR on these payments. |
| Qualifying P2PM small merchant receiving up to ₹1 lakh per month through UPI QR | Zero on all transactions | The exemption includes transactions above ₹2,000, provided the merchant qualifies for this category and monthly-receipt limit. |
| Other eligible standard P2M transactions above ₹2,000 | 0.4%, capped at ₹300 from ₹75,000 | The deduction is made on the merchant side. |
| Listed essential and thin-margin sectors, above ₹2,000 | ₹5 per transaction | The government names railways, telecommunications, insurance, fuel and agricultural inputs as examples. |
| Capital-market payments | 0.02%, capped at ₹300 | The government lists mutual funds, securities, stockbrokers and dealers. |
The Department of Financial Services sets out the effective date and rate arithmetic in its MDR FAQ. For special-sector treatment, category assignment matters: Google Pay for Business describes a broader list of merchant categories and says fees are calculated using the registered business category or merchant category code (MCC). Merchants should check the MCC and applicable rate with their acquiring bank or payment provider rather than infer the rate from the type of shop alone. Google Pay for Business’ merchant guidance also distinguishes the relevant payment products.
How much would a merchant pay?
For a standard eligible transaction above ₹2,000, the basic calculation is the transaction amount multiplied by 0.4%, until the cap applies. The official FAQ gives these examples:
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- ₹3,000 × 0.4% = ₹12 MDR.
- ₹50,000 × 0.4% = ₹200 MDR.
- At ₹75,000 and above, the standard MDR is capped at ₹300.
Google Pay for Business provides a separate settlement illustration that adds 18% GST to the MDR. On a ₹3,000 standard payment, it calculates ₹12 MDR plus ₹2.16 GST, for a total deduction of ₹14.16 and net settlement of ₹2,985.84. For a ₹100,000 payment, it applies the ₹300 MDR cap and adds ₹54 GST, for a total deduction of ₹354. These are provider examples, not a guarantee that every provider will display or settle a transaction identically. Check the tax invoice and settlement statement for the merchant’s exact accounting treatment; the examples apply GST to the MDR, not to the customer’s purchase price.
Does the ₹2,000 threshold depend on monthly turnover?
For standard eligible P2M transactions, Google’s guidance describes the threshold as applying to an individual payment above ₹2,000, with the fee determined by MCC. It is not a monthly or annual turnover threshold. That is separate from the exemption for qualifying P2PM small merchants, which is described by monthly receipts: up to ₹1 lakh through UPI QR.
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Do not assume that a business automatically qualifies for P2PM treatment just because it looks small or has low turnover. The Ministry’s description depends on the merchant’s P2PM classification and receipts. Merchant setup and categorisation therefore matter, and the merchant should confirm their status with their acquirer.
Can a merchant charge the customer MDR?
No. The announced policy treats MDR as a merchant-side deduction and says it cannot be passed on to buyers. A customer should not be asked to pay an extra UPI fee for a covered purchase. The Ministry also says UPI app providers may not add platform or hidden charges for these payments. If a merchant’s statement shows a deduction, that does not itself authorize adding the same amount to the customer’s bill.
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Why might two UPI QR payments be treated differently?
A QR code alone does not determine the applicable MDR. Two payments of the same amount can receive different treatment because the payment may be P2P or P2M, the merchant may or may not qualify for the P2PM exemption, or the merchant’s MCC may place it in a special or capital-market category. The start date also matters: this schedule applies from 15 October 2026, not before.
Also distinguish direct bank-account UPI from other products. Google Pay for Business says RuPay credit card on UPI, credit lines, AutoPay and separate SoundPod subscriptions may have distinct treatment. A charge relating to one of those services should not automatically be read as the new MDR for a direct bank-account UPI payment.
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What should a merchant check if a fee appears?
- Check the date. The announced framework begins on 15 October 2026. Ask the provider what a fee dated earlier relates to.
- Identify the transaction. Establish whether it was P2P or P2M, and whether it used a direct bank-account UPI payment or a separate product such as RuPay credit on UPI, a credit line, AutoPay or a device subscription.
- Check the amount and merchant category. Confirm whether the individual P2M payment exceeded ₹2,000 and ask the acquirer which MCC and rate were applied.
- Confirm P2PM eligibility if relevant. Ask whether the merchant account is classified in the qualifying P2PM category and whether receipts through UPI QR are within the ₹1 lakh monthly limit.
- Compare the fee line with the settlement record. Ask the provider to explain the MDR, any GST applied to it, and the net settlement amount. Keep the tax invoice and transaction details if the calculation appears inconsistent.
A QR standee or sticker does not change a merchant’s classification, rate, exemption or start date. Google says merchants do not need to replace existing QR standees or stickers for this change.
What changed from the earlier zero-MDR position?
Older government explanations describe the zero-MDR position for RuPay debit and BHIM-UPI following legal changes in January 2020, as well as a government incentive scheme for low-value BHIM-UPI P2M transactions in FY 2024–25. Those are historical policy details, not the schedule announced for transactions from 15 October 2026. The Ministry estimates that approximately 96% of merchant transactions will remain unaffected under the new framework; that is the Government’s estimate, not an independently verified projection.
The Ministry FAQ says a dedicated fund’s detailed operational framework was to be finalized in consultation with RBI within three months of 15 September 2026. The final eligibility and disbursement mechanics are not specified in the cited FAQ, so they should not be assumed.
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