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Under the UPI merchant-fee framework announced by India’s Department of Financial Services (DFS), MDR is paid by a covered merchant to its acquiring bank—not by the customer. The scheduled start date is 15 October 2026. For covered standard-category merchant transactions above ₹2,000, the announced rate is 0.4%, subject to a ₹300 cap for transactions of ₹75,000 and above. Account category and transaction type can change the result.
What UPI MDR is—and who pays it
Merchant discount rate (MDR) is a fee charged on a qualifying merchant transaction. Under the framework described in the Ministry of Finance’s Department of Financial Services FAQ, the merchant pays MDR to its acquiring bank. The fee is therefore a merchant-side cost, not a UPI charge debited from the customer’s payment. The FAQ says onboarded merchants cannot pass MDR on to buyers as a surcharge.
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The announced framework applies to selected UPI person-to-merchant (P2M) transactions, not every transfer made through UPI. A payment to a shop or other merchant is P2M; a transfer between people is person-to-person (P2P). The FAQ says P2P transactions remain free for both payer and recipient. It also says consumers continue to pay no UPI transaction charge, including when paying by QR code. These are separate points: an MDR may apply to a merchant’s covered transaction without becoming a customer-facing UPI fee. DFS FAQ, 15 September 2026.
When the announced standard rate applies
For a covered standard-category P2M payment, the FAQ specifies no MDR at or below ₹2,000 and a 0.4% MDR above ₹2,000. For transactions of ₹75,000 and above, the fee is capped at ₹300 per transaction. These are the terms announced in the FAQ, scheduled to take effect on 15 October 2026; they should not be mistaken for confirmation of how a particular merchant has been billed after that date.
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| Payment amount | Announced standard-category MDR | Example fee |
|---|---|---|
| ₹2,000 or less | No MDR | ₹0 |
| More than ₹2,000 but less than ₹75,000 | 0.4% | ₹3,000 payment: ₹12; ₹50,000 payment: ₹200 |
| ₹75,000 or more | 0.4%, subject to a ₹300 per-transaction cap | ₹1,00,000 would calculate to ₹400 before the cap, so the announced fee is ₹300 |
The table describes the standard schedule only. The thresholds do not by themselves determine every merchant’s fee: the FAQ also distinguishes account categories and certain sectors. The examples are arithmetic illustrations of the announced rates, not evidence that a specific merchant’s invoice follows them.
Check the merchant category before calculating a fee
The FAQ says applicability depends on account categorisation, not simply the amount paid or the appearance of the shop. It describes P2PM as a category for small vendors receiving up to ₹1 lakh per month through UPI QR directly into their accounts. A merchant classified as P2PM remains at zero MDR under the FAQ even if an individual payment is more than ₹2,000.
It also describes different treatment for specified merchant categories. A merchant should not infer its classification solely from its storefront or business name; the acquiring bank’s categorisation matters. The FAQ’s named sectors and transaction examples are not necessarily a complete list of every qualifying category.
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| Category or transaction type | Terms described in the DFS FAQ |
|---|---|
| Small merchant classified as P2PM | Zero MDR, including when an individual payment exceeds ₹2,000; the FAQ describes the category as vendors receiving up to ₹1 lakh per month through UPI QR directly into their accounts. |
| Railways, telecom, insurance, fuel, and other specified categories | Flat ₹5 MDR for transactions above ₹2,000, rather than the standard percentage rate. |
| Capital-market transactions, including payments toward mutual funds, securities, stockbrokers, and dealers | 0.02%, capped at ₹300. |
| Recurring UPI mandates/AutoPay | No prescribed MDR under the framework described in the FAQ. |
These are category-specific terms as stated in the DFS FAQ. A merchant with an uncertain category should ask its acquiring bank how the account is coded and how the relevant transaction type is treated before estimating charges.
How a merchant can work out its likely exposure
For a merchant, the useful question is not just “Is the payment above ₹2,000?” Work through the variables in order, then compare the result with the actual acquiring-bank billing. The FAQ sets out policy terms; it does not verify an individual merchant’s account coding or invoice.
- Identify the transaction type. Establish whether the payment is a merchant sale (P2M), a person-to-person transfer, a recurring mandate/AutoPay transaction, or a payment in a specially treated category.
- Confirm the account category with the acquiring bank. Ask whether the merchant account is classified as standard P2M, P2PM, or another category addressed by the framework. A P2PM account may remain at zero MDR even for a payment above ₹2,000.
- Apply the matching threshold and rate. For a covered standard P2M transaction, the announced schedule is zero at or below ₹2,000 and 0.4% above that amount. Check separately for the ₹300 cap at ₹75,000 and above or a category-specific rate.
- Check the billed fee against the transaction. Compare the acquiring-bank charge with the category, amount, and fee terms the bank says apply. If they do not align, request an explanation of the account classification and calculation rather than assuming the standard rate applies to every UPI receipt.
- Keep the customer price separate from MDR. The FAQ says merchants cannot pass this MDR through as a customer surcharge. A merchant’s fee calculation is not a basis for adding a separate UPI charge to the buyer.
The acquiring bank is central to this check because the FAQ identifies it as the recipient of MDR and because category classification affects the applicable treatment. The official material does not provide a universal account-setting path or establish the coding used for any specific merchant.
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What customers should expect
For consumers, the stated policy outcome is that a UPI payment does not acquire a customer transaction charge under this framework, whether the merchant’s transaction is above or below ₹2,000. The FAQ separately says merchants cannot add the MDR as a surcharge to the buyer. P2P transfers remain free for both sides as well.
DFS’s announcement headline says UPI remains free for P2P transactions and 96% of merchant transactions. The FAQ separately says transactions up to ₹2,000 make up more than 95% of P2M transaction volume. These are two differently worded government figures; the FAQ does not explain its underlying dataset or methodology, and the two percentages may not use the same denominator. Neither figure means every merchant transaction is covered by the same rate or category.
If a customer sees a separate UPI surcharge, the FAQ’s stated rule is that merchants cannot pass MDR on to buyers. The announcement does not describe a complaint or dispute procedure, so it is better not to assume a particular resolution channel from these documents alone. The announcement is available from the Department of Financial Services.
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Why the framework is being introduced
The government FAQ presents the framework as a way to address payment-acceptance costs while limiting the charges to specified merchant transactions. It reports that industry estimates put UPI operating costs at around ₹20,000 crore annually. That is an estimate cited by the FAQ; it does not name the source or provide an independently verifiable government accounting figure in the reviewed document.
The same FAQ reports that UPI processed 2,451 crore transactions worth ₹29.9 lakh crore in August 2026. It does not identify the underlying statistical source in the document. The figures give context for the scale and cost argument presented in the FAQ, but they should be read as figures reported by that document, not as separately verified calculations here.
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The FAQ says: “The charges are kept very reasonable and will be applicable only for transactions above ₹ 2,000 to ensure UPI remains the most affordable mode of accepting payments.” That is the Ministry’s policy language, not an independent assessment of affordability. It also says there is “no impact on small-value UPI transactions up to ₹ 2,000,” which it says comprise more than 95% of total P2M transaction volume; the document does not specify the dataset or method behind that percentage.
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Effective date: scheduled, not yet confirmed in operation
The DFS FAQ is dated 15 September 2026 and says the finalized framework takes effect on 15 October 2026. As of 13 October 2026, that date is still in the future. The rates in this article are therefore the announced terms scheduled to take effect, not a claim that implementation or post-effective-date billing has been independently confirmed.
For a merchant making decisions around the start date, distinguish the policy announcement from actual account billing. The FAQ establishes the announced schedule but does not verify the treatment of an individual merchant’s account, the bank’s invoice, or implementation status after 15 October. Confirm the effective treatment with the acquiring bank and review the applicable billing rather than relying on an old rate found in search results.
Do not confuse the 2026 schedule with older UPI MDR terms
An NPCI press release from 30 August 2019 announced a different UPI MDR schedule: 0.30%, with a maximum of ₹100 per transaction, and zero MDR for offline merchant QR scan-and-pay transactions up to ₹100. Those rates were stated to take effect on 1 October 2019. They are historical terms, not the 2026 framework described by the Ministry FAQ. NPCI’s 2019 press release.
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Random freezes, missing sound and display glitches usually trace back to one bad driver. Find and replace yours safely.Free scan · under a minuteWhen comparing a rate quoted in an older article, check its publication date and effective period. The 2019 numbers cannot be substituted for the announced 2026 schedule, and a merchant’s own applicable category still needs to be confirmed with its acquiring bank.
