Under the Ministry of Finance’s latest published position, a merchant should not add a separate UPI surcharge to recover Merchant Discount Rate (MDR) from you. The ministry’s 15 September 2026 release says MDR is a charge within the merchant payment ecosystem, not a charge on customers making UPI payments, and says banks have been advised to stop merchants from passing it on. That position applies even though some merchant-side UPI transactions may attract MDR under the framework described in the same release.
In practical terms, a line on your bill such as “UPI charge,” “MDR,” or “digital-payment fee” is not the same thing as the merchant’s own payment-processing cost. Whether a particular surcharge has a defined legal penalty or complaint procedure is less clear in the published material, so keep your records and escalate carefully rather than assuming a remedy that has not been officially specified.
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What the current rule means for a customer
The Ministry of Finance’s 15 September 2026 statement separates two questions that are often confused:
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- Can MDR exist? Yes. The 2026 framework describes MDR for certain merchant (person-to-merchant, or P2M) transactions.
- Can the merchant add that MDR to your bill? The ministry says no: banks have been advised to ensure merchants do not pass MDR on to customers.
The statement also says MDR is neither a tax nor a charge collected by the Government or NPCI. It is a fee within the payment ecosystem, generally associated with how a merchant’s acquiring bank, issuing bank and payment network settle a transaction. Calling it “UPI tax” therefore gives the wrong impression.
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This is the government’s current published position, not a promise that every dispute will have an immediately available statutory remedy. The exact commencement instrument for the newer framework was not included in the official texts reviewed, so the safest wording is that a merchant should not pass MDR through as a customer surcharge.
MDR and a UPI surcharge are different
MDR is a merchant-side payment cost
Merchant Discount Rate is calculated inside the payment system. A merchant may have an agreement under which its payment providers settle less than the face value of a transaction after applicable charges. That accounting happens between payment participants and the merchant. It does not turn the customer into the party responsible for MDR.
A surcharge is an extra amount demanded from you
A separate amount on the invoice, a higher price shown only when you choose UPI, or a request to transfer an additional percentage “because UPI has MDR” is a customer-facing surcharge. The September 2026 release specifically says MDR is not a customer charge and advises banks to prevent this pass-through. The existence of a merchant-side rate is therefore not permission to add the same rate to your payment.
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Which UPI transactions are covered by the 2026 framework?
The September 2026 release describes different treatment for person-to-person and merchant payments. The threshold below is a rule about whether MDR may apply inside the merchant ecosystem; it is not a fee threshold that authorises a customer charge.
| Transaction or category | Position described by the Ministry of Finance, 15 September 2026 | What the customer should see |
|---|---|---|
| Person-to-person (P2P) UPI transfer | Remains free | No UPI transaction fee added to the transfer |
| P2M transaction up to ₹2,000 | Remains free of MDR | No separate UPI or MDR line on the bill |
| Specified merchant transactions above ₹2,000 | MDR may apply under the described framework, with category exceptions, special rates and a cap in certain cases | The merchant should not pass that MDR on to the customer |
| Other merchant transactions | Treatment depends on the categories and exceptions in the framework | A customer surcharge cannot be justified simply by saying “UPI MDR” |
The release estimates that approximately 96% of merchant transactions will remain unaffected and that MDR will apply to about 4%. Those are Ministry of Finance estimates for 2026, not an independently verified calculation. They also do not mean that the remaining transactions can be billed to customers; they describe the share on which merchant-side MDR may be relevant.
Why websites and older answers say UPI is always free
Older explanations relied on a different legal and policy snapshot. RBI’s published response explains that section 10A of the Payment and Settlement Systems Act, 2007 bars a bank or system provider from imposing a direct or indirect charge on a person making or receiving payment through prescribed electronic modes. UPI was included through a CBDT notification dated 30 December 2019.
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A Ministry of Finance answer to the Lok Sabha dated 18 August 2025 described that framework and said there was no proposal at that time to impose transaction charges on UPI. That answer remains an accurate description of the position on its date, but it predates the later 2026 releases.
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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Clear out junk files and repair common Windows errorsFree Scan →On 8 August 2026, the ministry said consumers would not face transaction charges and described merchant MDR as conditional on parliamentary action and a later decision by the UPI Steering Committee. The 15 September release then described a new framework. Because the retrieved documents do not establish the exact enacted amendment and commencement dates, an article or merchant should not present the August announcement alone as a completed legal change, nor invent an effective date.
Timeline of the published policy position
| Date | What the official material said | How to read it |
|---|---|---|
| 30 December 2019 | CBDT notification brought UPI within the prescribed electronic modes discussed under section 10A. | Explains the earlier no-direct-or-indirect-charge framework. |
| 18 August 2025 | Lok Sabha answer said there was no proposal then to impose transaction charges on UPI. | Historical position as of that answer. |
| 8 August 2026 | Ministry said consumers would not face transaction charges and described merchant MDR as dependent on parliamentary action and a UPI Steering Committee decision. | Policy and legislative context, not by itself proof of a commenced framework. |
| 15 September 2026 | Ministry described the newer framework, including free P2P transfers, free MDR for P2M transactions up to ₹2,000, and MDR for specified merchant transactions above that amount; it said banks had been advised to prevent pass-through. | Latest published government position for answering a customer’s surcharge question. |
What to do if a shop adds a UPI fee
The published material does not identify a single mandatory consumer complaint route, a specific offence, or a fixed penalty for a surcharge. You can still create a clear record and ask for the charge to be removed.
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- Check the invoice. Look for wording such as “UPI fee,” “MDR,” “payment gateway charge,” “digital charge,” or a percentage added only after you select UPI. Distinguish that line from the advertised price of the goods or services.
- Ask the merchant to explain the line. Quote the Ministry of Finance’s 15 September 2026 position that MDR is not a customer charge and that banks have been advised to stop pass-through. Keep the conversation factual; do not claim a particular penalty unless an authority confirms one.
- Keep evidence. Save the itemised bill, UPI confirmation, transaction ID, date, amount, merchant name and any receipt or message showing that the extra amount was tied to UPI. A screenshot is useful if the price changes at checkout.
- Contact the relevant payment provider or bank. Provide the transaction record and explain that the merchant added a separate UPI-related amount. Ask what review or dispute process is available for that transaction. The published NPCI FAQ background does not itself specify a consumer remedy for this surcharge, so ask the provider what channel applies rather than naming one as mandatory.
- Record the outcome. Note whether the merchant removed the line, refunded it, or refused. This prevents confusion if you later discuss the transaction with your bank or provider.
Common misunderstandings to avoid
“The ₹2,000 limit is a customer-fee limit.”
No. In the September release, ₹2,000 distinguishes merchant transactions that remain free of MDR from specified merchant transactions above the threshold where MDR may apply inside the ecosystem. It does not authorise a shop to charge a customer above or below that amount.
“Every UPI merchant now pays MDR.”
No. The framework identifies specified categories and exceptions, and the ministry estimates that about 96% of merchant transactions will remain unaffected. Do not assume that a particular shop is in an MDR-bearing category without evidence.
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“Customers now pay a universal UPI fee.”
No. The same release says person-to-person transfers remain free and says MDR is not a customer charge. A merchant-side MDR framework is not a universal fee on people using UPI.
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“MDR is a government tax.”
No. The ministry expressly distinguishes MDR from both a tax and a charge collected by the Government or NPCI.
“The 2025 answer proves the 2026 position cannot change.”
No. The 18 August 2025 answer described the position at that time. The August and September 2026 releases describe a later policy development, while leaving the exact legal transition to the applicable enactment and commencement instruments.
How to judge a surcharge request at the counter
- Ask who is being charged. If the amount is deducted inside the merchant’s settlement, it is MDR. If you must pay it in addition to the listed price, it is a customer-facing surcharge.
- Ask what the amount is based on. “UPI MDR” is not enough to establish that the transaction is in a specified category or that the amount is calculated correctly.
- Check whether the amount appears only for UPI. A separate payment-method line is the clearest sign that the merchant is trying to pass through a processing cost.
- Use the date of the statement. The September 2026 release is the latest source in this timeline; older “always free” explanations may describe the pre-2026 framework.
Bottom line for shoppers and merchants
For a customer paying by UPI, the answer is no: a merchant should not add its MDR as a separate charge to your bill under the Ministry of Finance’s 15 September 2026 position. Some specified merchant transactions above ₹2,000 may attract MDR within the payment ecosystem, but that is a merchant-side arrangement. P2P transfers remain free, P2M transactions up to ₹2,000 remain free of MDR, and the ministry estimates roughly 96% of merchant transactions will be unaffected. Since the retrieved official material does not set out a definitive penalty or complaint route for every surcharge dispute, preserve the bill and payment record and ask your bank or payment provider what review process is available.
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