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1Fix the driver behind crashes, sound loss and screen glitches2Clear out junk files and repair common Windows errors3Scan for outdated or missing drivers - takes under a minuteShort answer: India’s Department of Financial Services (DFS) has announced a new, scheduled MDR framework for selected UPI person-to-merchant (P2M) payments starting 15 October 2026. Under the published FAQ, covered P2M transactions above ₹2,000 carry MDR of 0.4%, capped at ₹300 for transactions of ₹75,000 or more. The merchant pays its acquiring bank and cannot pass that MDR on to the customer.
This is not a charge on every UPI payment. Person-to-person transfers remain free, qualifying small P2PM merchants remain zero-MDR, payments up to ₹2,000 are described as free, and some sectors have different rates. Your account classification, merchant category and payment type determine which rule applies.
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What changes on 15 October 2026?
The DFS FAQ published on 15 September 2026 says the new framework is scheduled to take effect on 15 October 2026. Because that date is still in the future as of 13 October 2026, treat the figures below as the announced schedule, not as a fee that was already in force at the publication cutoff. Check the latest DFS, Reserve Bank of India and National Payments Corporation of India notices for any amendment before relying on it.
The framework concerns selected person-to-merchant (P2M) transactions. It does not turn all UPI transfers into paid transactions. Whether a particular payment is covered depends on the merchant account’s classification and merchant category, not simply on the fact that a customer scanned a UPI QR code.
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DFS says more than 95% of total UPI P2M transaction volume is up to ₹2,000. Its 15 September release was titled “UPI Continues to Remain Free for Peer to Peer Transactions and 96% of Merchant Transactions.” That headline indicates the broad intended coverage, but the release title does not explain the calculation or denominator; use the FAQ’s thresholds for an individual payment.
Announced MDR rates at a glance
| Payment or merchant category | Announced treatment | Who pays or what to check |
|---|---|---|
| Standard covered P2M | 0.4% on a transaction above ₹2,000; transactions of ₹75,000 and above are capped at ₹300 | Merchant pays its acquiring bank; customer surcharge is not allowed under the FAQ |
| P2M transaction of ₹2,000 or less | No MDR described in the FAQ | Confirm that the account and category are covered by the standard treatment |
| P2P transfer | Free to payer and beneficiary | Not a merchant sale |
| Qualifying P2PM small merchant | Zero MDR while the account remains in the exempt tier | FAQ describes up to ₹1 lakh of monthly inward UPI credits; confirm status with the acquirer |
| Railways, telecom, insurance and fuel categories | Flat ₹5 on transactions above ₹2,000 | Only if the merchant is classified in an eligible special sector |
| Capital-market transactions | 0.02%, capped at ₹300 | Classification and transaction type must be confirmed with the acquirer |
| Credit-linked UPI | Separate credit-product rules | Includes RuPay credit cards linked to UPI and bank credit lines; not the direct account-to-account schedule |
How the standard 0.4% fee is calculated
For a covered standard P2M payment above ₹2,000, multiply the transaction value by 0.004. The ₹300 ceiling applies when the transaction is ₹75,000 or more.
| Payment amount | Calculation under the announced standard P2M rule | MDR |
|---|---|---|
| ₹2,000 | At or below the threshold | ₹0 |
| ₹3,000 | ₹3,000 × 0.4% | ₹12 |
| ₹50,000 | ₹50,000 × 0.4% | ₹200 |
| ₹75,000 | ₹75,000 × 0.4% reaches the ceiling | ₹300 |
| ₹1,00,000 | ₹1,00,000 × 0.4% would exceed the ceiling | ₹300 after the cap |
The FAQ repeatedly describes payments up to ₹2,000 as having no MDR, including for established commercial entities. It does not say that every payment above ₹2,000 attracts the standard rate: P2PM exemptions and special categories can change the result.
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Who actually pays UPI MDR?
The merchant pays MDR to its acquiring bank—the bank or payment provider that onboards the merchant and enables UPI acceptance. The DFS FAQ states that merchants onboarded under the framework cannot pass MDR charges to customers while accepting UPI payments.
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In practical terms, a shop should not add a separate amount to a bill merely to recover the announced UPI MDR. A customer paying from a bank account through ordinary UPI remains a consumer making a payment without a UPI charge under the FAQ. P2P transfers remain free to both the payer and beneficiary.
The acquirer’s statement or settlement report may show the MDR deduction. Ask the provider how it labels the deduction, when it is taken, and whether the quoted rate includes any other contractual charge. The published MDR schedule does not establish the accounting format used by every provider.
Is UPI free for small merchants?
P2PM exemption
The FAQ describes P2PM vendors as small merchants receiving up to ₹1 lakh per month in inward UPI credits directly into their accounts. Those accounts are described as zero-MDR. A single payment above ₹2,000 does not by itself create MDR when the account remains in the exempt P2PM tier.
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The FAQ says a merchant that exceeds ₹1 lakh in monthly inward UPI credits consecutively for three months transitions to P2M classification. The transition is therefore based on the account’s recurring inflows and classification, not one unusually large sale. Ask the acquirer how it measures the monthly period, records inward credits and communicates a reclassification.
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Why the merchant label matters
Two businesses accepting the same ₹3,000 payment could receive different treatment if one is a qualifying P2PM account and the other is an established P2M account. The DFS FAQ leaves classification to the relevant account and merchant records. Confirm your status in writing instead of assuming that turnover, business size or the value of one payment determines it automatically.
Special rates and payment types
Railways, telecom, insurance and fuel
The FAQ lists railways, telecom, insurance and fuel among sectors using a flat ₹5 MDR on transactions above ₹2,000. This is not a universal ₹5 fee for any business that sells fuel or insurance; the merchant must be classified in the applicable category. Ask the acquiring bank which merchant category code (MCC) it assigned and whether the sector rule applies to the specific transaction.
Capital-market payments
Capital-market transactions are listed at 0.02%, with a ₹300 cap. The percentage and cap differ from the standard P2M schedule, so a broker, exchange-related merchant or other market participant should obtain the category treatment from its acquirer rather than applying the ordinary 0.4% calculation.
Credit-linked UPI
UPI funded through a credit product—such as a RuPay credit card linked to UPI or a bank credit line—follows separate credit-product rules. The direct account-to-account schedule in the FAQ should not be applied automatically to those payments. Eligibility, merchant acceptance and any product charges need to be checked with the provider handling the credit arrangement.
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What does not come from the MDR schedule?
MDR is only one possible cost of accepting digital payments. The DFS framework does not set the price of a merchant’s onboarding, payment aggregator contract, soundbox, QR display, software integration, settlement service or support plan. Providers can structure those services differently.
Before signing up, request a written, itemized quote covering:
- one-time onboarding or installation charges;
- recurring software, dashboard or support fees;
- soundbox rental or purchase and replacement terms;
- payment-aggregator or integration charges;
- settlement timing, minimums and any reconciliation fee;
- taxes and other pass-through amounts; and
- the MDR rate, cap, category and effective date used for your account.
NPCI’s merchant guidance says a merchant should partner with an acquiring bank to enable UPI. The acquirer provides the UPI infrastructure and the MCC used during onboarding. Settlement is described as immediate after the customer confirms payment into a merchant pool or bank account, subject to the merchant’s agreement; “immediate” therefore does not replace the need to read the provider’s settlement terms.
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How merchants can identify their applicable cost
- Identify the payment rail. Determine whether the customer is paying from a bank account, through a credit-linked UPI product, or by a different method.
- Ask for your account classification. Request confirmation of P2PM or P2M status and the conditions that could change it.
- Obtain the MCC. The acquiring bank assigns the merchant category code. Check that it accurately describes the business, because special-sector rates depend on classification.
- Apply the date and threshold. For the announced standard rule, payments up to ₹2,000 are described as zero-MDR; covered payments above ₹2,000 use 0.4%, subject to the ₹300 cap at ₹75,000 and above.
- Check exemptions and special categories. Confirm whether the P2PM monthly limit, a ₹5 sector rate or the 0.02% capital-market rate applies.
- Separate MDR from provider charges. Compare the itemized contract with the settlement statement so a device or service fee is not mistaken for MDR.
- Keep written evidence. Save the onboarding confirmation, MCC, classification notice, rate card and settlement reports in case the applied fee differs from the agreed treatment.
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NPCI lists QR, intent, application-based and collect modes for merchant acceptance. The acquiring bank or provider supplies the infrastructure for the selected integration. A countertop QR holder or standee can make an approved merchant QR easier to display, but it is only a physical display accessory: it is not a UPI account, payment terminal or substitute for onboarding.
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Use the QR issued or approved by your acquirer. Do not replace it with an arbitrary code, and do not assume that buying a generic stand creates a connection to your bank account. The DFS FAQ says existing QR stands continue to work under the described framework, so the scheduled MDR change does not itself require replacing a functioning approved stand.
Why older articles say merchants pay no UPI fee
Older summaries reflect an earlier policy. The DFS annual report says that, effective 1 January 2020, no charge, including MDR, was payable on payments using RuPay debit cards and BHIM-UPI. It also describes later incentive schemes for RuPay debit-card and low-value BHIM-UPI P2M transactions. That history explains the long-standing statement that UPI is free for merchants.
The September 2026 FAQ introduces a later, prospective, threshold-based framework for selected P2M payments. Both statements can be accurate when dated correctly: the 2020 policy describes the earlier regime, while the 2026 FAQ announces what is scheduled from 15 October 2026. Do not use an undated “UPI is always free” summary to decide what your account will pay after the commencement date.
Common mistakes to avoid
- Assuming every UPI payment is covered: P2P, P2PM exemptions, low-value payments and special categories are treated differently.
- Charging the customer a UPI surcharge: the FAQ says onboarded merchants cannot pass MDR to customers.
- Reclassifying after one large sale: the P2PM transition described by DFS depends on exceeding ₹1 lakh in monthly inward credits for three consecutive months.
- Applying 0.4% to credit-linked UPI: credit products follow separate rules.
- Confusing a provider fee with MDR: hardware, software, settlement and support charges are not set by the published MDR schedule.
- Ignoring the MCC: an incorrect category can lead to the wrong special-sector or standard treatment.
- Replacing a QR unnecessarily: an approved existing QR stand should continue under the described framework.
What merchants should verify before 15 October 2026
The start date is only two days after the 13 October 2026 information cutoff used here. Before the scheduled change, obtain the latest notice from your acquirer and check current DFS, RBI and NPCI communications for implementation changes or clarifications.
Ask the provider, in writing, these specific questions:
- Am I classified as P2PM or P2M, and what monthly test governs that status?
- What MCC is attached to my account?
- Which rate applies to payments above ₹2,000 in my category?
- Does the ₹300 cap or a sector-specific rate apply?
- How are credit-linked UPI payments treated?
- What are the separate charges for onboarding, devices, software, settlement and support?
- When will deductions appear in my settlement statement?
Those answers, rather than the value of one isolated payment, determine the cost your business should budget.
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