Customers should not be charged an extra fee for paying through UPI. The Ministry of Finance says merchant discount rate (MDR), where applicable, is a merchant-side charge that should not be passed on to customers. A September 2026 government release describes MDR for certain merchant transactions, but the release does not state when its new schedule takes effect. [Ministry of Finance, 15 September 2026]
Can a merchant add a fee because you paid by UPI?
The Ministry of Finance’s stated policy is that merchants should not pass MDR on to customers. It says banks have been advised to ensure that merchants do not do so, and that UPI application providers may not impose platform fees or hidden charges. The Ministry put it this way: “MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments.” [Ministry of Finance, 15 September 2026]
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MDR and a customer surcharge are different things: MDR is a merchant-side payment-processing charge; a surcharge is an extra amount the customer is asked to pay. The release says customers must not be charged a UPI transaction fee, platform fee, or other charge for sending or receiving money through UPI. If a bill includes a fee, ask what it is for before assuming it is a UPI surcharge: the Ministry’s statement does not decide whether an unrelated service fee is valid.
Which UPI payments does the announced MDR framework cover?
The Ministry’s 15 September 2026 release describes the following treatment. It does not state the schedule’s commencement date, so these are announced framework details, not confirmation that the rates are already in force. [Ministry of Finance release]
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| Transaction or merchant category | MDR treatment described by the Ministry | What the customer should know |
|---|---|---|
| Person-to-person (P2P) | Free regardless of amount | No transaction, platform, or other UPI charge may be imposed on individuals sending or receiving money. |
| Merchant payment up to ₹2,000 | Zero MDR | The Ministry says customers will not be required to pay a charge for these payments. |
| Qualifying small merchants under the P2PM category | Zero MDR on all transactions if monthly UPI QR receipts are up to ₹1 lakh | The category and monthly-receipt condition matter; a shop that looks small does not automatically qualify. |
| Specified P2M transactions above ₹2,000 | General rate of 0.4%; capped at ₹300 per transaction for transactions of ₹75,000 and above | This is a merchant-side rate in the announced framework, not an amount the customer should be asked to pay. |
| Transactions above ₹2,000 in railways, telecommunications, insurance, fuel, and agricultural inputs | Flat ₹5 MDR | The release lists these as essential or thin-margin sectors; it does not say this MDR should be passed to customers. |
| Payments related to mutual funds, securities, stockbrokers, and dealers | 0.02% MDR, capped at ₹300 per transaction | The stated rate applies to these capital-market-related transactions. |
The Ministry says MDR is distributed among payment-ecosystem participants, including banks and payment application providers; it is not a tax or a charge collected by the government or NPCI. [Ministry of Finance, 15 September 2026]
When does the new schedule start?
The release is dated 15 September 2026, but the accessed text does not give an effective date. The Department of Financial Services FAQ listing is also dated 15 September, but its contents do not establish the commencement date. Do not treat the rates above as confirmed to be in force without checking for a subsequent official notice. [Ministry of Finance release] [Department of Financial Services FAQ listing]
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Is a UPI payment over ₹2,000 taxed?
The ₹2,000 threshold in the September 2026 announcement concerns MDR treatment for merchant payments; it is not a GST threshold. In an earlier release dated 18 April 2025, the Ministry said there was no proposal at that time to impose GST on UPI transactions above ₹2,000. That 2025 statement described the position then and should not be read as cancelling or replacing the later 2026 MDR announcement. [Ministry of Finance, 18 April 2025] [Ministry of Finance, 15 September 2026]
How many merchant payments would be affected?
The Ministry estimates that approximately 96% of P2M transactions would remain unaffected, because they fall below the ₹2,000 threshold or are covered by the small-merchant zero-MDR framework. It says about 4% of merchant transactions would attract MDR. These are paired government estimates based on the Ministry’s data analysis, not independently audited findings. [Ministry of Finance, 15 September 2026]
Quick Recap
What to do if a shop asks for an extra UPI charge
- Ask what the fee is for. Request an itemised bill or an explanation of whether the amount is being added specifically because you chose UPI.
- Keep the evidence. Save the bill, payment confirmation or screenshot, merchant details, and transaction reference.
- Compare available ways to pay. Ask whether the merchant accepts cash or a card, then compare the total amount, availability, convenience, and any card or bank terms. No payment method is guaranteed to be available, cheaper, or free.
- Check current grievance instructions before escalating. The official release does not provide a customer complaint sequence. Check the current instructions in your UPI app, with your bank, and through NPCI before relying on a particular contact, link, or timeline. NPCI’s UPI FAQ search result includes a question about where merchants register a complaint, but that does not establish a customer escalation route. [NPCI UPI FAQs]
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