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UPI MDR is a merchant-side charge on certain person-to-merchant (P2M) payments; it is not a charge the customer should pay. Under the framework described by India’s Ministry of Finance on 15 September 2026, person-to-person transfers remain free, P2M payments up to ₹2,000 have zero MDR, and some specified merchant payments above ₹2,000 may attract category-dependent charges. The thresholds and rates below reflect that dated government explanation and may change.
What UPI MDR means
MDR stands for Merchant Discount Rate. It is a charge associated with processing an eligible merchant payment, distributed among participants in the payment ecosystem such as banks, payment service providers and UPI application providers. It is not itself a government tax or a fee collected by NPCI.
The Ministry of Finance stated on 15 September 2026: “It is clarified that MDR is neither a tax nor a charge collected by the Government or NPCI.”
Who pays UPI MDR?
For an eligible transaction, MDR is a merchant-side cost under the framework described by the Ministry. The Ministry says banks have been advised to ensure merchants do not pass MDR on to customers. It also says UPI application providers must not impose platform fees or hidden charges.
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So if a shop asks you to pay an extra amount specifically as a UPI MDR or UPI transaction fee, that is not consistent with the government position described in the 15 September 2026 release. A merchant should check an apparent MDR deduction with its acquiring bank or payment service provider rather than add it to the customer’s bill.
Which UPI transactions have zero MDR, and which may have a charge?
The applicable treatment depends on whether the payment is person-to-person or person-to-merchant, the amount, the merchant’s qualifying status and the transaction category. The Ministry of Finance’s 15 September 2026 explanation gives these categories:
| Transaction or category | Treatment described by the Ministry |
|---|---|
| Person-to-person (P2P), any amount | No transaction, platform or other charge may be imposed on individuals for sending or receiving UPI money; P2P remains outside the MDR framework. |
| P2M payment up to ₹2,000 | Zero MDR; the customer is not charged. |
| Qualifying small merchant under P2PM | 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. |
| Specified general P2M transactions above ₹2,000 | General MDR of 0.4%; for transactions of ₹75,000 and above, the stated cap is ₹300 per transaction. |
| Listed essential and thin-margin sectors, above ₹2,000 | Flat MDR of ₹5 per transaction for named sectors including railways, telecommunications, insurance, fuel and agricultural inputs. |
| Described capital-market payments | 0.02%, capped at ₹300 per transaction, for payments relating to mutual funds, securities, stockbrokers and dealers. |
The figures and classifications in this table are those described in the Ministry’s release of 15 September 2026, not a substitute for checking the applicable operational circular or legal instrument. The release’s page text does not resolve every edge case, such as mixed-category merchants, aggregation, reversals or disputes. A business should confirm its classification and any deduction with its provider.
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How to read the thresholds in practice
A customer pays a person
A transfer from one individual to another is P2P, not a merchant purchase. The Ministry says P2P transfers remain free at any amount. The transaction value does not convert an individual-to-individual transfer into a merchant payment.
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A customer pays a business up to ₹2,000
The general P2M rule described by the Ministry is zero MDR up to and including ₹2,000. The customer is not to be charged a UPI fee.
A business receives more than ₹2,000
An amount above ₹2,000 does not by itself establish that every merchant owes the same MDR. The transaction must fall within a chargeable category; the general rate, listed sector rates and capital-market treatment differ. The qualifying P2PM small-merchant exemption is also classification-specific and should not be assumed for every business.
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A general-category payment reaches ₹75,000
For specified general P2M transactions, the Ministry describes a 0.4% MDR and a maximum of ₹300 per transaction when the transaction is ₹75,000 or more. The cap is per transaction, not a monthly cap.
Why older explanations say UPI MDR is zero
A PIB clarification dated 18 April 2025 said MDR had been removed for prescribed P2M UPI modes effective January 2020, and rejected the then-circulating claim that GST was being levied on UPI transactions above ₹2,000. That statement is historical context; it should not be read as proof that every merchant transaction remains universally exempt under the later framework.
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The Ministry’s 8 August 2026 release described an enabling amendment to the Payment and Settlement Systems Act and said any future MDR would be limited to threshold-based merchant transactions. Its 15 September 2026 release sets out the later framework summarized here. The 15 September explanation is the relevant source for the categories and rates in this article.
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Is UPI MDR the same as GST?
No. MDR is a payment-processing charge, not a tax collected by the government or NPCI. The 18 April 2025 PIB clarification said GST is levied on charges such as MDR; that does not establish the GST treatment of every merchant’s invoice or its input-tax-credit position. A business should verify its tax treatment for its own circumstances and the applicable date rather than treat the MDR percentage as a GST rate.
How widespread is the change?
The Ministry said approximately 96% of P2M transactions remain unaffected under the framework it described. It also attributed 70% of total UPI transaction value to P2P payments, which remain outside the MDR framework. These are the Ministry’s 2026 figures, and the 96% figure is an approximation rather than an independently verified estimate.
What merchants should check if MDR appears on a statement
- Confirm the payment was P2M rather than P2P, and check its amount.
- Ask the acquiring bank or payment service provider which merchant category and rate it applied, including whether a sector-specific rate or qualifying P2PM status is relevant.
- Compare a general-category deduction with the stated 0.4% rate and the ₹300 cap for transactions of ₹75,000 and above; do not assume those general terms apply to sector-specific categories.
- For mixed-category, aggregated, reversed or disputed transactions, request the provider’s applicable operational rule. The Ministry’s release does not settle those edge cases.
- Keep MDR separate from any tax treatment on the provider’s charge and confirm tax handling with a qualified adviser where needed.
The current explanation cited here is the Ministry of Finance release published via PIB on 15 September 2026. The Department of Financial Services also lists an MDR FAQ dated that day; its linked PDF is not relied on here. For a disputed deduction or a legal determination, consult the current notification and NPCI or provider operational circulars alongside the government explanation.
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