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UPI MDR (Merchant Discount Rate) is a merchant-side charge on certain eligible UPI payments made to businesses—not a fee the customer should pay. Under the Ministry of Finance framework described on 15 September 2026, some specified person-to-merchant (P2M) transactions above ₹2,000 may carry MDR, with different rates for particular sectors. Person-to-person (P2P) transfers remain free. These are policy details that can change; the explanation below reflects the government’s position as of 15 September 2026.
What UPI MDR means
MDR stands for Merchant Discount Rate. It is a charge within the merchant payment ecosystem: the Ministry of Finance says it is distributed among participants such as banks, payment service providers and UPI application providers. The ministry states, “It is clarified that MDR is neither a tax nor a charge collected by the Government or NPCI.” Ministry of Finance, 15 September 2026.
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The relevant distinction is who is paying whom. A transfer between two individuals is P2P; a payment from a customer to a shop or other business is P2M. The rules described for merchant payments do not make every UPI transaction subject to MDR.
Who pays MDR on a business transaction?
Where MDR applies, it is a charge on the merchant side of the payment ecosystem. The government says merchants should not pass it on to customers, and banks have been advised to ensure that they do not. UPI application providers are also stated to be prohibited from adding platform fees or hidden charges. A customer should not be asked to pay an extra UPI fee at checkout under the framework described by the ministry.
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For a merchant, an applicable MDR may be reflected in settlement or provider terms. Check the acquiring bank or payment service provider statement and confirm the transaction’s category before treating a deduction as the correct rate.
UPI MDR categories and rates described by the government
The Ministry of Finance’s 15 September 2026 release describes these cases. Eligibility depends on transaction direction, value, merchant classification and sector; the listed rates should not be collapsed into one rule for every business.
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| Transaction or merchant category | Treatment described on 15 September 2026 |
|---|---|
| P2P transfers | Free at any amount; individuals are not to be charged transaction, platform or other fees for sending or receiving UPI money. |
| P2M payments up to ₹2,000 | Zero MDR; the customer is not charged. |
| Eligible P2PM small merchants | Zero MDR on all transactions for small merchants, including street vendors, receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category. This is category-specific and does not automatically cover every small business. |
| Specified general P2M transactions above ₹2,000 | 0.4% MDR; for transactions of ₹75,000 and above, the stated maximum is ₹300 per transaction. Ministry of Finance, 15 September 2026 |
| Named essential and thin-margin sectors, above ₹2,000 | Flat ₹5 per transaction for sectors including railways, telecommunications, insurance, fuel and agricultural inputs. Ministry of Finance, 15 September 2026 |
| Described capital-market payments | 0.02%, capped at ₹300 per transaction, for payments relating to mutual funds, securities, stockbrokers and dealers. Ministry of Finance, 15 September 2026 |
The ministry says approximately 96% of P2M transactions remain unaffected under this framework. It also attributes 70% of total UPI transaction value to P2P transfers, which remain outside the MDR framework. These are government-reported figures, not independently verified estimates. Ministry of Finance, 2026
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- A ₹1,500 shop payment: It is a P2M transaction at or below ₹2,000, so the described treatment is zero MDR.
- A ₹3,000 payment to a general-category merchant: It is above the stated threshold and may fall under the described 0.4% general rate, subject to the merchant and transaction’s classification. The customer is not to be charged that MDR.
- A payment above ₹2,000 in a named essential sector: The release describes a flat ₹5 per transaction for the listed sectors, rather than the general percentage.
- A payment relating to a mutual fund or securities: The release describes the 0.02% capital-market rate, capped at ₹300 per transaction.
- A qualifying P2PM merchant’s QR receipts: The small-merchant exemption described is zero MDR on all transactions when the merchant is in the P2PM category and receives up to ₹1 lakh per month through UPI QR codes.
These examples illustrate the published categories, not a determination for every edge case. The government release’s page text does not settle matters such as mixed-category businesses, aggregation, reversals or disputes; merchants should check current operational instructions with their provider for those cases.
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Is UPI MDR the same as GST?
No. MDR is the merchant-side payment charge described above; it is not itself a government tax. A PIB clarification on 18 April 2025 rejected a then-circulating claim that GST was being levied on UPI transactions above ₹2,000 and said MDR had been removed for prescribed P2M UPI modes effective January 2020. That statement describes the position at that time, not the later framework announced in September 2026. PIB clarification, 18 April 2025
The 2025 clarification says GST is levied on charges such as MDR. It does not establish the tax treatment for every merchant invoice or the merchant’s input-tax-credit position. A merchant should verify the applicable GST treatment for its circumstances and date rather than treating the MDR percentage as GST.
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Why older articles may say all UPI merchant payments are free
Earlier official explanations described zero MDR for prescribed P2M UPI modes from January 2020. The Ministry of Finance’s 8 August 2026 release later described an enabling amendment to the Payment and Settlement Systems Act and said any future MDR would apply only to limited, threshold-based merchant transactions. The ministry’s 15 September 2026 release sets out the framework summarized here. PIB, 8 August 2026 · Ministry of Finance, 15 September 2026
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