Do small businesses pay fees for accepting UPI? Under the Ministry of Finance rules released on 15 September 2026, many do not. Person-to-person (P2P) transfers and person-to-merchant (P2M) payments up to ₹2,000 carry zero merchant discount rate (MDR). A qualifying small merchant in the P2M (P2PM) category that receives up to ₹1 lakh per month through UPI QR codes also remains at zero MDR on all transactions. Other merchant payments can carry different rates or flat charges, depending on the transaction amount, merchant classification and sector.
MDR is a merchant-side charge shared by payment-system participants. It is not a government or NPCI tax, and the customer should not be charged it separately. Because the September 2026 framework uses categories and thresholds, the phrase “UPI is always free for every merchant transaction” is too broad.
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What UPI merchant fees actually are
When a customer scans a business’s UPI QR code and pays, the payment travels through an acquiring bank, the customer’s bank and one or more payment-application providers. MDR is the charge allocated within that ecosystem for processing a merchant payment. The Ministry of Finance’s 15 September 2026 release states that MDR is neither a tax nor a charge collected by the Government or NPCI.
MDR is different from a fee shown to the customer at checkout. The same release says customers should not be charged MDR, advises banks to ensure merchants do not pass it on, and prohibits UPI application providers from imposing platform fees or hidden charges. A business may still have separate commercial terms with its acquiring bank or payment provider—for example, settlement, equipment or other service charges—but the MDR rules alone do not establish that every provider service is free.
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Current UPI MDR rules for merchants
The following treatments are the categories and thresholds described in the 15 September 2026 Ministry of Finance release. They are not a universal rate card for every QR product: your acquiring bank or payment provider must classify your merchant account and transactions.
| Transaction or merchant category | Treatment described in the 15 September 2026 release |
|---|---|
| P2P UPI transfer | Free regardless of amount. |
| P2M merchant payment up to ₹2,000 | Zero MDR. |
| Qualifying P2PM small merchant receiving up to ₹1 lakh per month through UPI QR codes | Zero MDR on all transactions. |
| Specified P2M transaction above ₹2,000 | MDR of 0.4%; capped at ₹300 for transactions of ₹75,000 and above. |
| Transaction above ₹2,000 in listed essential or thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs | Flat ₹5 per transaction. |
| Listed capital-market payment, including mutual funds, securities, stockbrokers and dealers | MDR of 0.02%, capped at ₹300 per transaction. |
These rows should not be read as “every payment above ₹2,000 costs 0.4%.” Sector and payment-category classification determines which row applies. A merchant should obtain the classification in writing from its acquiring bank or UPI payment provider.
How to tell which rule applies to your business
1. Separate P2P from P2M
A transfer between two individuals is P2P and is free regardless of amount under the September 2026 release. A customer paying a business is P2M. A shop, professional practice or online seller should therefore assess its merchant category rather than rely on the fact that the payment was made through a familiar UPI app.
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2. Check the payment value
For an ordinary specified P2M category, payments up to ₹2,000 are described as zero-MDR transactions. Above ₹2,000, the applicable treatment depends on the merchant and sector classification. The 0.4% rate listed in the release is capped at ₹300 when the transaction is ₹75,000 or more; it is not stated as a rate that automatically applies to every large payment.
3. Check whether you qualify as a P2PM small merchant
The release gives a separate protection to qualifying small merchants in the P2PM category that receive up to ₹1 lakh per month through UPI QR codes. Those merchants continue to receive zero MDR on all transactions, including transactions above ₹2,000. The ₹1 lakh figure is a monthly receipt threshold through UPI QR codes, not a limit on the value of one individual sale.
Ask your provider how it measures the monthly amount, which QR codes are included and when eligibility is reviewed. A business that crosses the threshold may be treated differently, so retain monthly statements and the provider’s classification notice.
4. Check for a listed sector or payment type
Some payments above ₹2,000 use a flat ₹5 MDR rather than a percentage. The release identifies essential or thin-margin sectors such as railways, telecommunications, insurance, fuel and agricultural inputs. Listed capital-market payments, including mutual funds, securities, stockbrokers and dealers, use 0.02% with a ₹300 cap. The examples are categories named in the release, not a permission to apply the flat rate to every low-margin business.
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These examples show how the thresholds work; they do not determine your category. The acquiring bank’s classification controls the actual treatment.
- ₹1,500 purchase at an ordinary shop: This is a P2M payment up to ₹2,000, so the release describes zero MDR.
- ₹2,500 purchase at an ordinary shop: It is above the universal ₹2,000 threshold. It could fall under the listed 0.4% category, a sector-specific flat ₹5 category or the P2PM small-merchant exemption; classification is required before calculating a fee.
- ₹80,000 specified P2M payment: At 0.4%, the uncapped calculation would be ₹320, but the release caps MDR at ₹300 for transactions of ₹75,000 and above.
- ₹10,000 payment for a listed essential-sector transaction: The stated treatment is a flat ₹5, provided the payment is classified in that listed sector.
- ₹50,000 listed capital-market payment: At 0.02%, the percentage is ₹10, below the ₹300 cap.
- ₹3,000 sale by a qualifying P2PM small merchant receiving ₹90,000 through QR codes that month: The merchant remains within the up-to-₹1 lakh monthly threshold described in the release, so the transaction is covered by zero MDR.
MDR versus what a customer sees
MDR is deducted or accounted for within the merchant payment ecosystem; it is not supposed to appear as a surcharge on the customer’s UPI payment. The Ministry says banks have been advised to prevent merchants from passing MDR to customers. A receipt that adds a “UPI fee” therefore raises a different question from the MDR rate itself: ask the acquiring bank why the charge appeared and whether it is an unauthorised pass-through.
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Do not assume that a zero-MDR rule eliminates every possible business cost. A provider agreement can contain separate terms for hardware, sound boxes, settlement services, reconciliation tools or other products. Review the agreement, fee schedule and settlement statement separately from the MDR classification.
How a small business should verify its own fees
- Identify the acquiring entity. Check the QR onboarding documents, settlement bank statement or merchant dashboard to find the acquiring bank or payment provider responsible for your account.
- Request your category in writing. Ask whether the account is P2M or P2PM, whether you are treated as a qualifying small merchant and which sector or payment category is recorded.
- Confirm the monthly threshold method. For the P2PM exemption, ask how the provider measures the up-to-₹1 lakh monthly UPI-QR receipts, whether multiple QR codes are combined and what happens when the threshold is exceeded.
- Ask for the applicable rate and cap. The written schedule should identify whether a payment is zero MDR, 0.4% with the stated cap, a flat ₹5 or 0.02% with a ₹300 cap.
- Separate MDR from other charges. Request an itemised list of any settlement, equipment, subscription or service fees. The government release does not establish that these separate services are free.
- Reconcile settlements. Compare gross UPI collections with the amount credited to your bank account and the provider’s statement. Keep the transaction date, amount, category and any deduction so an incorrectly classified payment can be challenged.
- Escalate discrepancies. First raise the issue with the acquiring bank or provider, quoting the transaction IDs and the written category decision. If the provider changes its policy, obtain the effective date and revised schedule before relying on the new calculation.
What changed from the 2025 announcements
The FY 2024–25 incentive was temporary
A Cabinet announcement dated 19 March 2025 described an incentive scheme for the financial year from 1 April 2024 through 31 March 2025. For eligible small merchants, it described zero MDR and a 0.15% incentive on qualifying UPI P2M transactions up to ₹2,000. The incentive was routed to acquiring banks and shared with other participants.
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That announcement is historical. It should not be presented as a current merchant rebate or as proof that a provider must credit 0.15% today. The September 2026 framework is the later rule set described for the current period.
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The April 2025 GST clarification has a limited date range
A Ministry of Finance release dated 18 April 2025 said no GST applied to UPI transactions at that time because MDR was not being charged then, and rejected a claim that GST was planned on UPI transactions above ₹2,000. That statement predates the MDR framework described in September 2026. It therefore cannot, by itself, establish the current GST treatment of any MDR charge.
For bookkeeping and tax reporting, ask your accountant and provider how any current MDR or separate service charge is invoiced and treated under the rules in force for the relevant period. Do not copy the 2025 “no GST” wording into a 2026 policy or accounting manual without checking the current position.
Why headlines about UPI fees can be misleading
- “UPI is no longer free”: This ignores the zero-MDR treatment for P2P, P2M payments up to ₹2,000 and qualifying P2PM small merchants up to the monthly QR threshold.
- “All payments above ₹2,000 cost 0.4%”: The release lists a 0.4% category, but also lists a ₹5 flat category, a 0.02% capital-market category and the P2PM exemption.
- “The government collects MDR”: The Ministry expressly says MDR is neither a tax nor a charge collected by the Government or NPCI.
- “The customer must pay the fee”: The release says MDR is not a customer charge and advises banks to stop merchants passing it on.
- “The 2025 incentive still applies”: The 0.15% incentive was tied to FY 2024–25 and should not be treated as a standing benefit.
- “No GST can ever apply”: The April 2025 statement addressed the position before the September 2026 MDR framework and does not settle later treatment.
How widespread is the effect?
The Ministry of Finance said in its 15 September 2026 release that about 96% of merchant transactions remain unaffected. That is the Ministry’s 2026 estimate, not an independently measured result for every business or sector. Individual merchants can still see a different outcome when their payment category, transaction mix or monthly QR receipts place them in a listed MDR category.
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A practical decision rule for owners
Start with classification, not with the payment amount alone. If the payment is P2P, the release describes it as free. If it is P2M and no more than ₹2,000, the release describes zero MDR. If your business is a qualifying P2PM small merchant within ₹1 lakh of monthly QR receipts, the release describes zero MDR on all transactions. For every other case, match the merchant category and sector to the provider’s written schedule, then apply the listed percentage, flat amount and cap.
Keep the classification, threshold calculation and fee schedule with your financial records. UPI policy is recent and may change; verify the current Ministry of Finance release and your provider’s effective schedule whenever you change QR products, add a new business line or approach the ₹1 lakh monthly threshold.
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