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Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →Outbyte Driver Updater FREEFix the driver behind crashes, sound loss and screen glitchesFind Drivers →Short answer: Under the Ministry of Finance’s September 15, 2026 summary, person-to-person (P2P) UPI transfers remain free at every amount. Merchant (P2M) payments up to ₹2,000 remain free of merchant discount rate (MDR). Specified merchant payments above ₹2,000 may attract MDR: generally 0.4%, capped at ₹300 for transactions of ₹75,000 or more, with separate ₹5 and 0.02% categories. The charge is intended to stay inside the merchant-payment ecosystem rather than being added to the customer’s bill. The official material does not clearly establish the date on which the new rates start applying.
What UPI merchant fees mean in 2026
Merchant discount rate (MDR) is the fee associated with accepting a digital payment. It is distributed among participants that process a merchant transaction, such as the acquiring bank, payment service providers and UPI application providers. It is not a government tax and is not described by the Ministry of Finance as a fee collected by NPCI.
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The key distinction is between the person sending money and a merchant accepting payment:
- P2P (person to person): A transfer between individuals. The Ministry says every P2P UPI transaction remains free, regardless of the amount.
- P2M (person to merchant): A payment to a shop, service provider, business or other merchant. The amount, merchant category and, in some cases, the merchant’s monthly receipts determine whether MDR applies.
This distinction matters because “UPI is free” is accurate for P2P transfers but is no longer a complete description of every merchant transaction under the September 2026 framework.
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Current rates and exemptions
The following treatment is the rate schedule described in the Ministry of Finance’s September 15, 2026 release for India. It is a policy summary, not a substitute for the full government notification or NPCI implementation circular.
| Transaction or merchant category | Stated MDR treatment |
|---|---|
| P2P UPI transfer, any amount | Free; no transaction, platform or other fee may be charged to the individual for sending or receiving under the stated framework |
| P2M payment up to ₹2,000 | Zero MDR |
| Specified ordinary P2M payment above ₹2,000 | 0.4%; capped at ₹300 when the transaction value is ₹75,000 or more |
| Qualifying payment above ₹2,000 in railways, telecommunications, insurance, fuel or agricultural inputs | Flat ₹5 per transaction |
| Mutual funds, securities, stockbrokers and dealers | 0.02%; capped at ₹300 |
| Qualifying P2PM small merchant receiving up to ₹1 lakh per month through UPI QR | Zero MDR on all transactions, according to the Ministry’s summary |
The Ministry estimates that about 96% of P2M transactions will remain unaffected. That is the Ministry’s data-based estimate, not an independently verified transaction count.
How the 0.4% rate and ₹300 cap work
For a specified ordinary P2M payment above ₹2,000, multiply the transaction value by 0.004. A ₹2,500 payment produces a stated MDR of ₹10; a ₹10,000 payment produces ₹40. At ₹75,000, 0.4% equals ₹300, so the cap applies. A ₹100,000 transaction is not charged 0.4% of the full amount under the stated cap: the MDR is limited to ₹300.
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1Fix the driver behind crashes, sound loss and screen glitches2Repair Windows errors before they cause bigger problems3Scan for outdated or missing drivers - takes under a minuteDo not apply 0.4% solely because a payment exceeds ₹2,000. The release uses the word “specified” and separately identifies essential-sector, capital-market and small-merchant rules.
When the flat ₹5 rate applies
The Ministry lists railways, telecommunications, insurance, fuel and agricultural inputs as sectors with a flat ₹5 MDR for qualifying transactions above ₹2,000. The flat amount is per transaction, not a percentage of the bill. A merchant’s actual classification and the transaction’s category code determine whether this exception is used; a business should confirm those details with its acquiring bank.
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How the 0.02% capital-market rate works
Payments relating to mutual funds, securities, stockbrokers and dealers are listed at 0.02%, with a ₹300 cap. For example, 0.02% of ₹10,000 is ₹2. The percentage reaches ₹300 at a transaction value of ₹1.5 million, after which the stated cap limits the MDR. These examples show the arithmetic only; the category must first qualify as one of the listed capital-market transactions.
Why the ₹2,000 threshold is not the only test
A payment amount is the first filter, not the whole decision. Four questions should be considered together:
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- Is the transfer P2P or P2M?
- If it is P2M, is the amount at or below ₹2,000?
- Is the merchant in the P2PM small-merchant category and receiving no more than ₹1 lakh per month through UPI QR?
- If neither exemption applies, does the merchant belong to one of the sectors with a flat ₹5 or 0.02% rate?
For example, a ₹3,000 payment to an ordinary specified merchant could fall under 0.4%, while a ₹3,000 qualifying fuel payment is listed at ₹5. A ₹3,000 payment received by a qualifying P2PM small merchant with monthly QR receipts within ₹1 lakh remains at zero MDR under the Ministry’s description. A ₹2,000 merchant payment remains zero MDR under the general threshold, regardless of the ordinary merchant category.
Who actually pays MDR?
The Ministry states that “MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments.” In practical terms, the fee is accounted for among the institutions supporting the merchant transaction. The policy does not describe it as a separate charge that a customer should pay at checkout.
Banks have been advised to ensure that merchants do not pass MDR on to customers. UPI applications also may not impose platform fees or hidden charges under this framework. That is the official policy position; the amount shown in a particular merchant’s settlement report or terms still depends on how the acquiring bank implements the applicable category.
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A merchant therefore should not add a line such as “UPI surcharge” to recover MDR from the buyer merely because the payment was made by UPI. If a merchant receives a different instruction from an acquiring bank, it should ask for the written rule, category code and effective-date notice before changing prices or receipts.
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The timing is not conclusively stated in the official material summarized for this article. The Ministry identifies a government notification dated September 14, 2026 and an NPCI circular dated September 15, 2026, but those references do not clearly state the commencement date on which an acquiring bank must begin deducting the listed MDR.
Do not treat September 14 or September 15 as an automatic start date. A notification date and a circular date can precede operational implementation. Merchants should obtain the effective date from their acquiring bank or inspect the complete NPCI circular before publishing a start date, changing pricing or forecasting settlement deductions. Customers should be cautious about social-media posts that claim a universal start date without citing the operative document.
What merchants should check before a deduction appears
1. Confirm the merchant category
Ask the acquiring bank which merchant category code and P2M/P2PM classification are attached to each QR or payment identifier. The 0.4%, ₹5 and 0.02% treatments are category-dependent.
2. Check the P2PM monthly threshold
If the business is classified as a P2PM small merchant, track receipts through UPI QR codes during the relevant month. The stated threshold is ₹1 lakh in monthly receipts. The release’s protection is conditional, so a colloquial description such as “small shop” is not enough by itself.
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3. Read the settlement statement
Look for the gross transaction value, any MDR line, the category used and the net amount settled. Compare those entries with the bank’s written implementation notice. Keep records of monthly QR receipts if the business relies on the P2PM exemption.
4. Separate customer pricing from payment costs
Do not add an ad-hoc UPI surcharge. If a bank’s instructions appear inconsistent with the Ministry’s customer-protection language, escalate the question to the bank’s merchant support team and request the applicable rule in writing.
5. Verify the effective date
Because the inspected official summary does not resolve commencement, obtain confirmation before budgeting for the fee. Ask whether the rate applies to the transaction date, settlement date or another processing event; the detailed operating rule is not stated in the summary.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What customers should know
P2P transfers remain free
The Ministry states: “All person-to-person (P2P) UPI transactions will remain completely free, irrespective of the amount transferred.” That covers sending money to another individual, including amounts above ₹2,000. It is not the same as paying a merchant’s QR code.
A merchant payment should not automatically show a UPI fee
Merchant MDR is described as an ecosystem charge, and banks have been advised to prevent merchants from passing it to customers. If a checkout screen or receipt adds a UPI-specific fee, save the receipt and ask the merchant which rule authorizes it. Contact the UPI application or bank if the explanation is unclear; do not assume that a merchant’s label proves the fee is an official customer charge.
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Do not infer the rate from the bill alone
A ₹3,000 payment might be subject to the ordinary 0.4% rule, a flat ₹5 sector rule, the 0.02% capital-market rule or zero MDR under the qualifying small-merchant treatment. The merchant’s category and monthly status are necessary to identify the correct treatment.
How this differs from the earlier UPI MDR framework
The apparent change is easier to understand chronologically:
- The government described zero MDR for UPI and RuPay debit transactions from January 2020.
- A March 2025 government release described an incentive scheme for financial year 2024–25, running from April 1, 2024 through March 31, 2025. It provided a 0.15% incentive on qualifying small-merchant transactions up to ₹2,000 and zero MDR without an incentive for other listed categories. That scheme is not a current merchant-fee schedule.
- A Lok Sabha answer published August 18, 2025 records that section 10A of the Payment and Settlement Systems Act, 2007 prohibited charges on payers or beneficiaries for prescribed electronic modes under section 269SU of the Income-tax Act. It also notes that UPI and RuPay debit cards were notified modes and that a 2019 NPCI circular had permitted acquiring banks to charge MDR at 0.30% before the later zero-MDR policy.
- A Ministry statement dated August 8, 2026 said any future MDR would be limited and subject to a later committee decision. The later September 15, 2026 statement supplies the current rate categories summarized above.
The older 0.30% figure and the 0.15% incentive explain why different articles and documents may show different percentages. Neither should be presented as the September 2026 rate for today’s specified P2M transactions.
Limits of the published summary
The Ministry’s release provides the headline rates and categories but does not, by itself, spell out every merchant category code, settlement formula or edge case. The full government notification and NPCI circular were referenced but are not reproduced in the summary. Questions such as how a merchant’s ₹1 lakh monthly limit is measured, how reclassification is communicated, and exactly which transaction codes fall into each sector should be confirmed with the acquiring bank or the complete circular.
That limitation does not change the core customer distinction: P2P transfers are stated to remain free, merchant payments up to ₹2,000 are stated to carry zero MDR, and only specified higher-value merchant categories are listed for MDR. It does mean that a merchant should not calculate its liability from the amount alone.
Practical examples
| Scenario | How to read the stated framework |
|---|---|
| ₹50,000 sent to a friend | P2P; remains free regardless of amount |
| ₹2,000 paid to an ordinary shop | P2M at the threshold; zero MDR |
| ₹2,500 paid to a specified ordinary merchant | 0.4% calculation gives ₹10, subject to the merchant category |
| ₹100,000 paid to a specified ordinary merchant | General-rate calculation is limited by the ₹300 cap |
| ₹3,000 qualifying fuel payment | Listed flat ₹5 sector treatment, if the merchant category qualifies |
| ₹10,000 qualifying securities payment | 0.02% calculation gives ₹2, subject to the capital-market category |
| ₹3,000 received by a qualifying P2PM small merchant within the ₹1 lakh monthly QR threshold | Zero MDR on all transactions under the Ministry’s stated small-merchant rule |
Bottom line for buyers and merchants
For buyers, the rule remains straightforward for P2P: no fee, whatever the amount. For merchants, the September 2026 framework is conditional rather than universal. Start with P2P versus P2M, apply the ₹2,000 threshold, then check the P2PM monthly limit and sector-specific rates. Treat the 0.4% rate, ₹300 cap, ₹5 flat charge, 0.02% rate and ₹1 lakh threshold as the Ministry’s stated policy summary, and verify the implementation date and category details with the acquiring bank before acting on them.
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