Under the Ministry of Finance framework scheduled to take effect on 15 October 2026, UPI Merchant Discount Rate (MDR) is a payment-acceptance fee paid by certain merchants to their acquiring bank—not a separate charge for the customer. The announced rate depends on the payment type, amount, merchant classification and business sector. As of 13 October 2026, the new framework was announced but not yet in force.
What is a UPI merchant charge?
A UPI merchant charge in this context means Merchant Discount Rate, or MDR: a fee associated with accepting certain person-to-merchant (P2M) UPI payments. Under the announced framework, the merchant pays MDR to its acquiring bank. The bank then distributes it among participants in the payment ecosystem, including banks and payment application providers.
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MDR is not a tax collected by the Government or NPCI. The Ministry of Finance states: “MDR is neither a tax nor a charge collected by the Government or NPCI.” Ministry of Finance, PIB release, 15 September 2026.
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Who pays UPI MDR?
The merchant bears MDR through its acquiring bank when a transaction falls under a chargeable category. The Ministry’s example is a ₹3,000 general P2M payment: at 0.4%, the merchant pays ₹12 MDR to its acquiring bank. The buyer should not be asked to pay that MDR as a separate UPI surcharge.
The Ministry’s FAQ says merchants may not pass MDR on to customers: “No, merchants on-boarded cannot pass on MDR charges to customers while accepting payments through UPI.” It also says banks have been advised to ensure that merchants do not pass the fee on. Department of Financial Services FAQ, 15 September 2026.
The FAQ also says UPI application providers are prohibited from charging a platform fee or hidden charge for UPI payments. This describes the Ministry’s announced framework; it does not make credit-linked UPI products identical to direct account-to-account UPI payments. Those products operate under separate credit-product rules, so check the terms for the specific credit product.
In practical terms, a merchant may account for its payment acceptance costs as part of running a business, but the cited FAQ says it cannot add the MDR to a customer’s bill as a UPI surcharge. The MDR is paid on the merchant side to the acquiring bank, which then distributes it within the payment ecosystem. It is not a government tax collected at checkout.
What MDR rates are scheduled for UPI payments?
The Ministry’s FAQ and release describe the following treatment for the framework scheduled to begin on 15 October 2026. These are announced rates, not rates already in force on 13 October 2026.
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| Payment or merchant case | Scheduled MDR treatment |
|---|---|
| P2P transfer | Free regardless of amount. |
| P2M payment of ₹2,000 or less | No MDR. |
| General P2M payment above ₹2,000 | 0.4%; capped at ₹300 for transactions of ₹75,000 and above. |
| Specified essential and thin-margin sectors: railways, telecommunications, insurance, fuel and agricultural inputs | Flat ₹5 on a transaction above ₹2,000. |
| Specified capital-market payments: mutual funds, securities, stockbrokers and dealers | 0.02%, capped at ₹300 per transaction. |
| Small merchants in the P2PM category receiving up to ₹1 lakh per month through UPI QR | Zero MDR on all transactions, including payments above ₹2,000, while the merchant account remains in the exempt category. |
Source for the announced rates and categories: Ministry of Finance, Department of Financial Services FAQ, 15 September 2026 and Ministry of Finance, PIB release, 15 September 2026.
The schedule has more than one kind of rate. The general merchant rate is a percentage, while the listed essential-sector treatment is a flat ₹5 for qualifying transactions above ₹2,000. Specified capital-market payments have a smaller percentage rate and a per-transaction cap. The small-merchant category is an exemption, not merely a lower rate: the FAQ says it covers all transactions, including ones above ₹2,000, while the account stays in the exempt category.
The ₹300 limit also works differently in the two percentage-rate cases. For the general rate, the Ministry specifies the cap for transactions of ₹75,000 and above. For the capital-market category, it describes a ₹300 cap per transaction. Merchants should identify which category applies before relying on either cap rather than assuming the general rule covers every business type.
How to tell which rate applies
Do not infer the fee from the amount alone. The announced treatment turns on four details: whether the payment is P2P or P2M, its value, the merchant’s classification and monthly QR receipts, and whether the business belongs to a specified sector.
- Identify the payment type. A person-to-person transfer remains free under the announcement; the MDR schedule concerns merchant payments.
- Check the amount. P2M payments at or below ₹2,000 have no MDR. The announced general rate starts above ₹2,000.
- Check the merchant account’s classification. The P2PM small-merchant exemption is described for merchants receiving up to ₹1 lakh per month through UPI QR. It covers all their transactions, including those above ₹2,000, as long as the account remains in that exempt category.
- Check the sector. A listed essential-sector payment above ₹2,000 uses the flat ₹5 rate; a listed capital-market payment uses 0.02%, subject to its ₹300 cap. These are category-specific treatments, not the general 0.4% rate.
- Apply the cap where relevant. For general P2M payments, the announced ₹300 cap applies to transactions of ₹75,000 and above. The capital-market cap is ₹300 per transaction.
For a merchant, this means the right question is not simply “How much did the customer pay?” It is also “What is the payment type, how is the merchant account classified, what are its monthly QR receipts, and is this a listed business category?” Two transactions for the same amount could therefore have different scheduled MDR treatment if one is a general merchant payment and the other falls into a listed sector or an exempt P2PM account.
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If the merchant’s category or exemption status is unclear, the rates alone do not determine the answer. The FAQ describes the small-merchant fund’s operational design as pending, so the precise mechanics for confirming or retaining exempt status are not established in the cited material. A merchant should confirm its account classification and the rate applied by its acquiring bank rather than assuming that a monthly-receipts threshold automatically establishes or preserves an exemption.
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- A ₹3,000 general merchant purchase: The Ministry’s example calculates 0.4% as ₹12 MDR, paid by the merchant to its acquiring bank.
- A P2M purchase of ₹2,000 or less: No MDR is scheduled.
- A purchase of ₹75,000 or more at a general merchant: The scheduled rate is subject to a maximum MDR of ₹300 per transaction.
- A payment above ₹2,000 to a listed essential-sector merchant: The scheduled MDR is a flat ₹5.
- A payment above ₹2,000 to a qualifying P2PM small merchant: Zero MDR applies if the merchant receives no more than ₹1 lakh per month through UPI QR and the account remains in the exempt category.
- A listed capital-market payment: The announced rate is 0.02%, with MDR capped at ₹300 per transaction.
These examples illustrate the announced schedule. They do not establish how a merchant’s classification will be confirmed in every case. In particular, a customer should not calculate a surcharge from the merchant’s MDR rate: the fee, where applicable, is borne by the merchant and cannot be passed on as an MDR charge to the customer.
Does this mean UPI was previously charged, or that GST applies?
The policy statements need to be read in date order. A Ministry release dated 18 April 2025 said MDR had been removed from P2M UPI effective January 2020 and rejected claims that GST applied to UPI payments above ₹2,000. A Lok Sabha answer dated 18 August 2025 described the then-current position under section 10A and said there was then no proposal to impose UPI transaction charges. Those statements describe the earlier policy period; they do not negate the later framework announced in September 2026.
On 8 August 2026, a Ministry release described the Taxation and Other Laws (Amendment) Bill, 2026 as proposing an amendment to section 10A, with a committee to decide on MDR if Parliament passed the bill. The 15 September FAQ then announced the framework and a 15 October start date. The cited material does not include the final amending Gazette notification or operative NPCI circular, so it does not establish the detailed enactment history or implementation mechanics. Ministry release, 18 April 2025; Lok Sabha answer, 18 August 2025; Ministry release, 8 August 2026.
The older statements are not proof that every later proposal was abandoned; they are snapshots of the policy and proposal status at the dates they were issued. Likewise, the September 2026 FAQ is the source for the announced schedule and start date, but it does not substitute for the missing final legal instrument or NPCI operating circular when the question is a detailed legal one. As of the research date, the framework was still forthcoming, so readers should not describe the scheduled rates as having already taken effect.
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Government releases also reported incentive payouts of ₹1,389 crore in FY2021–22, ₹2,210 crore in FY2022–23 and ₹3,631 crore in FY2023–24. These figures help distinguish historical incentive payouts from the announced MDR schedule: they are reported payouts, not rates charged to customers or a basis for calculating a merchant’s MDR.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What the announced change does—and does not—establish
The Ministry estimates that approximately 96% of merchant transactions will be unaffected under the new framework. That is a government estimate, not a measured outcome after commencement. It should not be presented as a verified post-launch result or as a guarantee about any individual merchant’s account.
The FAQ says existing physical QR stands and QR infrastructure will continue to work and need not be replaced. A merchant does not need a new QR stand to change MDR treatment; the schedule is determined by payment and merchant categories, not by buying different display hardware. A QR stand can be useful simply to display a code at the point of payment, but purchasing one is optional and does not itself change the applicable MDR rate.
The Ministry’s announcement therefore answers who bears the fee and lists the scheduled categories, but it leaves operational questions to be confirmed. In particular, the small-merchant fund’s operational design is described as pending, and the cited material does not spell out how a merchant’s classification will be verified in every transaction. The final Gazette notification and operative NPCI circular would be needed to establish detailed legal implementation mechanics.
For a legal interpretation or a merchant’s precise operational rate after commencement, the final Gazette notification and operative NPCI circular would be needed. The Ministry FAQ is the source for the announced date, rates and customer non-pass-through rule, but the cited materials do not resolve every implementation detail.
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Frequently Asked Questions
Who pays UPI MDR: the customer or the merchant?
Under the Ministry’s announced framework, the merchant pays applicable MDR to its acquiring bank. The Ministry says merchants cannot pass MDR on to customers as a UPI charge.
Can a shop add a UPI surcharge to my bill?
The Ministry FAQ says merchants may not pass MDR charges on to customers while accepting UPI. Banks have been advised to ensure that merchants do not pass the fee on.
Are UPI payments of ₹2,000 or less chargeable?
The announced framework keeps P2M payments of ₹2,000 or less free of MDR. P2P transfers remain free regardless of amount.
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What is the scheduled MDR on a general UPI merchant payment above ₹2,000?
The announced general rate is 0.4%, capped at ₹300 for transactions of ₹75,000 and above. For example, the Ministry says a ₹3,000 payment would mean ₹12 MDR paid by the merchant.
Do small merchants pay MDR on payments above ₹2,000?
The FAQ describes zero MDR on all transactions, including those above ₹2,000, for P2PM small merchants receiving up to ₹1 lakh per month through UPI QR, while the merchant account remains in the exempt category. The operational design for the small-merchant fund is described as pending.
Do merchants need a new UPI QR stand under the announced framework?
No. The Ministry FAQ says existing physical QR stands and QR infrastructure continue to work and need not be replaced. Buying a QR stand does not change MDR treatment.
Are the scheduled MDR rates already in effect?
As of 13 October 2026, the framework was announced but scheduled to take effect on 15 October 2026. The cited sources do not include the final Gazette notification or operative NPCI circular detailing implementation.
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Bottom line: The announced UPI MDR framework scheduled for 15 October 2026 makes the merchant—not the customer—responsible for applicable acceptance fees. P2P transfers and P2M payments up to ₹2,000 remain free of MDR; above that, the rate depends on merchant classification and sector, including specified exemptions, flat fees, percentages and caps. The rates were scheduled rather than in force as of 13 October 2026, and detailed implementation still requires confirmation from the final legal and NPCI instruments.
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