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Short answer: UPI merchant charges depend on the payment category, amount and the merchant’s classification. The Ministry of Finance’s 15 September 2026 release says customers must not be charged MDR, keeps person-to-person payments free, and sets different merchant rates above ₹2,000. That release does not state an effective date, so a merchant should confirm the rate actually being billed with its acquiring bank.
UPI limits are also category-specific rather than one universal number. NPCI’s FAQ states a normal UPI transfer limit of up to ₹1 lakh, while tax payments and certain investment categories can have higher ceilings. A merchant-approved return is different from a failed-payment reversal: the first follows the seller’s refund process, while the second is governed by RBI turnaround times and compensation rules.
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What is UPI MDR and who is supposed to pay it?
Merchant discount rate (MDR) is a charge within the payment-acceptance ecosystem. It can be shared among participants such as the acquiring bank and other payment-system entities. The Ministry of Finance’s 15 September 2026 statement expressly says, “MDR is neither a tax nor a charge collected by the Government or NPCI.”
The same statement says MDR must not be passed on to the customer. In other words, a merchant should not add a separate “UPI MDR” line to the customer’s bill merely because the customer paid by UPI. The release also says UPI application providers are prohibited from imposing platform fees or hidden charges. That policy statement concerns the UPI payment category; it does not automatically determine the price of every separately contracted service, device, account or payment instrument a merchant may use.
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For merchants, the practical question is not simply “Is UPI free?” It is “Which UPI category applies, what amount was processed, and has my acquiring bank implemented the published framework?”
What rates does the 15 September 2026 government framework describe?
The latest government release reviewed for this article describes the following treatment. The percentages and caps below are the Ministry’s stated framework, not a substitute for the acquiring bank’s settlement statement.
| Payment situation | Rate or treatment described by the Ministry of Finance | Qualification |
|---|---|---|
| Person-to-person (P2P) | Free | Applies to transfers between individuals. |
| Person-to-merchant (P2M) payment up to ₹2,000 | Zero MDR | The release describes merchant payments up to this amount as remaining free of MDR. |
| Small QR merchant in the named P2PM category | Zero MDR | For certain merchants receiving up to ₹1 lakh per month through UPI QR. |
| Other P2M payment above ₹2,000 | 0.4% MDR | Capped at ₹300 for transactions of ₹75,000 and above, as described in the release. |
| Specified qualifying essential-sector payment above ₹2,000 | Flat ₹5 MDR | Only for the essential-sector transactions covered by the release. |
| Specified capital-market payment | 0.02% MDR | Capped at ₹300 for the transactions identified in the release. |
How the percentage and cap work
For an illustrative transaction that genuinely falls in the 0.4% category, ₹10,000 would produce a calculated MDR of ₹40. At ₹75,000, 0.4% equals ₹300, so the stated cap becomes relevant. At ₹1,00,000, the uncapped calculation would be ₹400, but the release describes a ₹300 cap for transactions of ₹75,000 and above. These examples explain the arithmetic only; they do not establish that a particular merchant or transaction belongs in that category.
The flat ₹5 treatment is not a general UPI fee. It applies only when the transaction is one of the qualifying essential-sector payments described by the Ministry. Likewise, 0.02% is limited to the specified capital-market use cases and is capped at ₹300.
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How many payments are affected?
The Ministry estimates that about 96% of merchant transactions remain unaffected and that MDR applies to about 4%. Those are figures published by the Ministry, not an independently validated market study, and they should be read together with the category qualifications in the release.
Has the new MDR framework already taken effect?
The timing needs care. An 8 August 2026 Ministry of Finance release described legislation as an enabling proposal and said a steering committee would decide MDR after the bill passed. The later 15 September release describes the framework and rates but, in the material available, does not state an effective date.
Therefore, do not assume that every acquiring bank began billing the listed rates on 15 September. Before recording a cost, changing prices or telling customers that a fee is payable, ask the acquiring bank for written confirmation of:
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- the effective date it is using;
- the merchant category assigned to the account;
- which transactions qualify for the ₹2,000 threshold, the ₹1 lakh small-QR condition or a special sector rate;
- how the cap is applied in settlement reports; and
- whether any separately priced service is outside MDR itself.
What is the normal UPI payment limit?
NPCI’s FAQ answers “What is the limit of fund transfer using UPI?” by stating that normal UPI transactions can be up to ₹1 lakh. That is a ceiling for the normal category, not a promise that every bank, app or customer profile will permit the full amount.
NPCI also identifies higher limits for designated use cases. Its FAQ wording includes ceilings up to ₹2 lakh for categories such as capital markets, collections, insurance and foreign inward remittances, and up to ₹5 lakh for IPO and Retail Direct Scheme transactions. In 2024, the Reserve Bank of India announced a ₹5 lakh per-transaction limit for tax payments.
| Use case | Published ceiling | Source and caution |
|---|---|---|
| Normal UPI transfer | Up to ₹1 lakh per transaction | NPCI FAQ; the bank or app may impose a lower operational limit. |
| Specified capital-market, collection, insurance and foreign-inward-remittance categories | Up to ₹2 lakh in the NPCI FAQ wording | Only where the payment is identified as one of those categories. |
| IPO or Retail Direct Scheme | Up to ₹5 lakh | NPCI FAQ category-specific ceiling. |
| Tax payments | ₹5 lakh per transaction | RBI announcement in 2024; the payment channel and bank must support the category. |
Your bank, the UPI app, the account type, risk controls and current NPCI rules can all affect the amount you are allowed to send. Check the limit shown before authorising a high-value payment and identify the category rather than relying on a single “UPI limit.”
Do not confuse a limit with a fee threshold
The ₹2,000 amount in the MDR framework is a pricing threshold for a described merchant-payment category. It is not a UPI transfer limit. The Ministry characterises daily limits as security and risk-management controls, not as a point at which a charge becomes due.
Do these 3 things before closing this tab:
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A completed purchase that the customer later returns is handled through the merchant’s normal return and refund process. NPCI’s FAQ says the merchant asks its bank to refund the charged amount under the defined process. The customer should first use the merchant’s published return channel, provide the order or invoice details requested, and retain the UPI transaction reference (often shown as the UTR or transaction ID).
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A customer’s change of mind, returned goods or rejected service does not turn a successfully completed payment into a failed UPI transfer. The merchant must approve the return under its policy and initiate the refund; the bank’s failed-transaction auto-reversal rules do not replace that decision.
“My UPI transaction has failed but my bank account has been debited.”
First establish which failure occurred. RBI’s failed-transaction framework uses different outer limits depending on whether the beneficiary or a merchant received confirmation.
| Situation | Required outer limit | Compensation for delay |
|---|---|---|
| Account debited, but the beneficiary was not credited | Auto-reversal by the beneficiary bank no later than T+1 | ₹100 per day after T+1 until reversal, under the RBI framework. |
| Account debited, but the merchant did not receive transaction confirmation | Auto-reversal no later than T+5 | ₹100 per day after T+5 until reversal, under the RBI framework. |
Here, T means the date of the transaction used in the RBI turnaround-time framework. The prescribed period is an outer limit, not a target to wait for: the RBI circular says operators should try to resolve failed transactions sooner. The circular describes the prescribed TAT as “the outer limit for resolution of failed transactions.”
What to do immediately
- Save the transaction reference, date, amount and the exact status shown in the UPI app.
- Check the bank statement to confirm that the debit is real rather than a temporary authorisation or a duplicated notification.
- For a merchant payment, ask the merchant whether its system received confirmation; do not request a merchant “refund” if the payment is still a bank-side failed transaction.
- Raise the issue with your bank through its UPI app or support channel and quote the reference number.
- If the applicable T+1 or T+5 deadline passes without the prescribed reversal or compensation, escalate through the Reserve Bank Integrated Ombudsman Scheme.
“My transaction is showing ‘Pending’. The amount has been debited and not credited. Is there a problem?”
A pending status means the payment has not reached a final success or failure state in the app. NPCI’s consumer FAQ advises contacting the bank if a failed-transaction refund has not arrived within an hour and gives a general estimate of 48 hours for a pending payment to reach the beneficiary. Those are customer-guidance estimates, not replacements for the RBI outer limits in the table above.
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Do not make a second payment solely because the first one appears pending. Confirm with the beneficiary or merchant, check the transaction history and ask your bank whether the original reference is still in progress. If the bank ultimately classifies the transaction as failed, the relevant T+1 or T+5 rule applies according to the failure type.
Where should a customer or merchant complain?
Customers
NPCI directs customers to their participating bank’s UPI app for transaction status and grievance support. Start with the bank that holds the debited account, because it can trace the UPI reference and apply the reversal process. Keep screenshots, the reference number, the amount, the date and any merchant correspondence.
Merchants
A merchant should contact its acquiring bank, the institution that onboards and settles its UPI acceptance. The acquiring bank can confirm the merchant category, MDR treatment, settlement entry and whether a customer refund was initiated. A merchant’s consumer-facing UPI app is not necessarily the party that determines its acquiring settlement.
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When the bank or payment operator does not provide the prescribed redress within the RBI turnaround time, the customer can use the Reserve Bank Integrated Ombudsman Scheme. Include the original complaint reference and evidence that the applicable TAT expired.
Historical context: why older “zero MDR” explanations can mislead
The Income Tax Department’s Section 269SU explainer described a policy under which charges, including MDR, were inapplicable from 1 January 2020 for prescribed electronic modes. A Prime Minister’s Office release also stated that zero MDR applied to BHIM-UPI and RuPay debit-card transactions from January 2020.
Those statements describe the policy and instruments in force at that time. They should not be used to override the later Ministry of Finance statement from September 2026, which sets out categories and rates but leaves the implementation date unresolved in the material reviewed. For a current merchant bill, the acquiring bank’s documented implementation is the decisive operational check.
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A practical checklist before disputing a UPI charge
- Identify whether the payment was P2P or P2M.
- For P2M, compare the amount with the ₹2,000 threshold.
- Check whether the merchant is in the named small-QR P2PM category and within the stated ₹1 lakh monthly-receipt condition.
- Check for a specified essential-sector or capital-market classification.
- Ask the acquiring bank which September 2026 framework date and rate it has applied.
- Separate an MDR line from a merchant-approved refund, a failed-payment reversal and any unrelated contracted service charge.
- For a debit with no credit or confirmation, record whether the applicable outer limit is T+1 or T+5 and preserve the reference number.
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