Generally, no. Under the Department of Financial Services (DFS) framework scheduled to take effect on 15 October 2026, a merchant onboarded under the framework cannot pass the announced UPI Merchant Discount Rate (MDR) on to the customer. The DFS FAQ says customers should pay only the posted price when they pay through UPI.
That answer is specifically about passing UPI MDR to buyers. It is not a blanket legal ruling on every fee a business might describe as a service, convenience, delivery, or other charge in every commercial situation. The merchant’s category, payment product, and acquiring bank or payment aggregator determine how the framework is applied to its account.
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What the UPI fee rule says
The DFS FAQ dated 15 September 2026 gives a direct answer to the question, “Can enterprise merchants pass the MDR to buyers?” It says: “No, merchants on-boarded cannot pass on MDR charges to customers while accepting payments through UPI.” The same answer says the framework is intended to ensure that consumers pay only the posted price.
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Customer-side answer
If a shop, website, restaurant, or other eligible merchant accepts an ordinary UPI payment after the framework takes effect, it is not supposed to add the announced MDR as a separate amount to your bill. The intended result is that the price displayed for the goods or service is the amount you pay, whether you use a UPI QR code or another supported UPI acceptance method.
Merchant-side answer
MDR is a fee associated with accepting a payment. The framework allows for limited, threshold-based MDR treatment in specified circumstances, but the FAQ says an onboarded merchant cannot recover that MDR by adding it to the customer’s bill. The fee treatment between the merchant and its acquiring bank or payment aggregator is separate from what the merchant may collect from the buyer.
Which UPI transactions are covered?
The published framework distinguishes transaction value and merchant category. It does not treat every UPI payment as identical. The following rates and exemptions are stated in the DFS FAQ.
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| Transaction or merchant category | Treatment stated in the DFS FAQ |
|---|---|
| Eligible person-to-merchant (P2M) transaction above ₹2,000 | 0.4% MDR |
| Transaction below ₹2,000 | No MDR |
| Transaction of ₹75,000 or above | MDR capped at ₹300 per transaction |
| Eligible person-to-person-merchant (P2PM) small vendor | Zero MDR when the vendor receives up to ₹1 lakh per month through UPI QR and is categorised as an eligible small vendor |
| Railways, telecom, insurance, fuel, and other named categories | Flat ₹5 above ₹2,000 |
| Capital-market transactions | 0.02%, capped at ₹300 |
The wording uses “above ₹2,000” and separately says transactions “below ₹2,000” remain free. It does not expressly state in the FAQ how an amount of exactly ₹2,000 is classified. A merchant whose transactions sit at that boundary should ask its acquiring bank or payment aggregator for the account-specific treatment rather than assume that the two descriptions are interchangeable.
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How the 0.4% rate and ₹300 cap work
For an eligible ordinary P2M payment above ₹2,000, 0.4% is the stated rate. A ₹3,000 payment would produce an MDR calculation of ₹12 before any other account-specific settlement treatment. At ₹75,000, 0.4% equals ₹300, which is also the stated maximum. At ₹1,00,000, 0.4% would ordinarily equal ₹400, but the FAQ’s ₹300 per-transaction cap limits the MDR to ₹300.
Those calculations describe the merchant-side MDR under the framework. They do not authorize the merchant to add ₹12, ₹300, or another MDR amount to the customer’s invoice.
Why the small-vendor exemption matters
The FAQ says eligible P2PM small vendors receiving up to ₹1 lakh per month through a UPI QR remain at zero MDR. It also makes clear that a payment above ₹2,000 does not by itself create MDR for an exempt P2PM merchant. The account must be categorised as eligible; a merchant cannot establish the exemption merely by looking at the value of one transaction.
Special category rates
The FAQ lists a flat ₹5 treatment above ₹2,000 for railways, telecom, insurance, fuel, and other named categories. It separately lists capital-market transactions at 0.02%, with a ₹300 cap. These are category-specific treatments, not alternatives that every shop or online seller can choose. The merchant’s classification and the way its provider has onboarded the account are decisive.
What “no fee to the customer” does and does not mean
The prohibition is clear about passing MDR through to a UPI customer. It is narrower than a declaration that no business may ever impose any charge in any commercial arrangement. A merchant might use terms such as convenience fee, service fee, delivery fee, or booking fee for other purposes, but the DFS FAQ does not establish that every such charge is automatically covered by, or automatically exempt from, the MDR pass-through rule.
For a customer, the practical distinction is whether the amount is being added because the payment is being made through UPI. A receipt that shows a higher total only when UPI is selected raises a different question from a disclosed charge that applies to every payment method under the merchant’s normal pricing terms. The FAQ directly addresses MDR passed to buyers; it does not provide a universal classification of all other commercial fees.
When the rule takes effect
The timing explains why older statements about UPI charges can appear to conflict with the newer FAQ.
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1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errors- 30 December 2019 and January 2020: A Gazette notification removed MDR on P2M UPI effective January 2020. The Ministry’s April 2025 clarification described that historical position as meaning no MDR was then charged on UPI.
- 18 August 2025: In a Lok Sabha answer, the Ministry of Finance said Section 10A of the Payment and Settlement Systems Act barred banks or system providers from imposing charges on a payer or beneficiary for prescribed modes, including UPI and RuPay debit card. It also said there was then no proposal to impose UPI transaction charges.
- 8 August 2026: A Ministry statement said consumers would not face transaction charges, peer-to-peer payments would remain free, and any MDR would be limited and threshold-based. It described a proposed Section 10A change as enabling a framework and referred to a committee headed by NPCI.
- 15 September 2026: DFS published the detailed FAQ with the 0.4% threshold, caps, exemptions, category rates, customer pass-through prohibition, and 15 October 2026 start date.
- 15 October 2026: This is the scheduled effective date stated in the FAQ.
The 2025 statement records the government’s position at that time; it does not supersede the later September 2026 FAQ. Likewise, the August 2026 statement describes a developing framework, while the September FAQ supplies the operational details.
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Why the policy matters to merchants and customers
UPI is used at a scale where a small rate can affect large settlement flows. The DFS FAQ says more than 95% of total UPI P2M transaction volume is up to ₹2,000. It reports 2,451 crore UPI transactions valued at ₹29.9 lakh crore in August 2026. A Press Information Bureau release separately reported 2,366 crore transactions worth ₹29.9 lakh crore in July 2026. These are different monthly figures from different official publications and should not be combined into one period.
The FAQ also reports an industry estimate of approximately ₹20,000 crore in annual UPI operating costs. That is presented as an industry estimate, not as a government audit or independently verified calculation. The framework’s thresholds and caps are intended to address payment-system costs while preventing a direct surcharge on consumers.
What merchants should check with their provider
The FAQ identifies acquiring banks and payment aggregators as implementation participants. A merchant cannot determine its final settlement treatment solely by looking at a QR sticker or the amount of one customer payment.
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- Check the threshold logic. Request written confirmation of how the provider handles payments below ₹2,000, payments above ₹2,000, and an amount exactly equal to ₹2,000.
- Review the cap. For eligible transactions of ₹75,000 or more, verify that the provider applies the ₹300 per-transaction maximum where that category’s rules call for it.
- Check monthly QR receipts. A P2PM vendor seeking the zero-MDR treatment should confirm that its monthly QR receipts and account categorisation satisfy the stated up-to-₹1-lakh condition.
- Read settlement reports. Compare the gross payment, any provider-side MDR, taxes or other disclosed settlement entries, and the net amount credited. The provider’s report is the practical record of how the account has been treated.
- Keep customer pricing separate. Do not add the provider’s MDR as a UPI surcharge to the buyer’s posted price. If the business has another fee that applies under its commercial terms, describe that fee clearly and obtain professional advice if its legal status is uncertain.
What customers should do if a UPI fee appears
First, look at the itemised bill. A line explicitly labelled UPI fee, MDR, or payment surcharge is evidence that the amount is being tied to the payment method. Ask the merchant whether the amount is intended to recover MDR and request a corrected bill if so.
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If the merchant refuses, keep the receipt, screenshot, or payment confirmation showing the additional amount and contact the UPI app, the bank connected to the payment, or the merchant’s acquiring provider through its published support channel. Those organisations can determine the relevant account and transaction classification. The DFS FAQ does not assign an individual merchant’s category or prescribe a single complaint route, so the provider handling that account is the appropriate place to verify the transaction record.
A customer should not assume that every fee appearing near a UPI payment is MDR. Compare the same purchase’s price and disclosed charges across payment methods, and distinguish a payment-method surcharge from a charge that the merchant applies regardless of how the customer pays.
QR codes, soundboxes, and terminals do not decide surcharge rights
A QR display, payment soundbox, POS terminal, or reconciliation system is acceptance equipment. Buying or leasing one of these devices does not itself determine whether a merchant may charge a UPI fee. The provider agreement, account category, and applicable framework do that.
The FAQ’s references to QR infrastructure and soundboxes concern how merchants accept and receive payment. They should not be read as permission to recover MDR from customers, nor as proof that every account using the same hardware has the same rate.
Credit-linked UPI is a separate question
The FAQ distinguishes direct user-account-to-merchant-account UPI payments from credit-linked UPI products, such as a RuPay credit card linked to UPI or a pre-sanctioned credit line. Credit-linked payments operate under separate credit-product rules. The MDR discussed in the FAQ applies to direct account-to-merchant UPI transactions, so a merchant handling a credit-linked product should confirm that product’s terms with its provider rather than assume the ordinary UPI table applies unchanged.
Bottom-line decision for a UPI customer
For the announced framework, a merchant onboarded under it cannot pass the UPI MDR on to the customer, and the customer is intended to pay the posted price. The scheduled start date is 15 October 2026. MDR may still be calculated on the merchant side according to thresholds, caps, exemptions, and categories, but that does not make an MDR surcharge on the buyer acceptable under the DFS FAQ. Questions about an individual merchant’s classification or settlement statement must be resolved with that merchant’s acquiring bank or payment aggregator.
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