For an Indian merchant, the cheapest acceptance method depends on the transaction type and the merchant’s contract. The Department of Financial Services (DFS) FAQ published on September 15, 2026, describes a UPI framework scheduled from October 15: eligible person-to-merchant (P2M) payments above ₹2,000 carry 0.4% MDR, capped at ₹300 for transactions of ₹75,000 or more. The FAQ says consumers are not to pay that charge.
Debit-card MDR is a different regime. A March 2025 Ministry of Finance release, citing RBI rules, reports a ceiling of up to 0.90%; that is not an automatic price for every merchant. The same DFS FAQ gives a general credit-card MDR range of 1.5%–2.5% per transaction. In every case, the amount actually debited from a merchant depends on the acquiring bank or payment provider’s written terms, merchant category, channel and eligibility.
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Quick comparison: the merchant cost of each payment method
| Payment method | Officially stated merchant-cost reference | Important qualification | Consumer charge under the stated framework |
|---|---|---|---|
| UPI, eligible P2M | 0.4% on transactions above ₹2,000; capped at ₹300 at ₹75,000 and above | Scheduled by the DFS FAQ from October 15, 2026; transactions through ₹2,000 are unaffected | No separate UPI payment fee to the consumer, according to the FAQ |
| UPI, specified sectors | ₹5 flat MDR on eligible transactions above ₹2,000 in examples such as railways, telecom, insurance and fuel | Only applies where the merchant and transaction meet the category rules | Not to be passed through as a separate UPI payment fee under the stated framework |
| UPI, capital-market category | 0.02%, capped at ₹300 | Category and eligibility must be confirmed before applying it | No separate UPI payment fee stated |
| Debit card | Up to 0.90% MDR across card networks, according to the March 2025 Ministry of Finance release citing RBI | A ceiling or context figure, not a guaranteed rate in an individual contract; RuPay debit MDR had been zero since January 2020 under the cited framework | Merchant terms determine the acceptance cost; do not infer a customer fee from the ceiling |
| Credit card | Typical MDR of 1.5%–2.5% per transaction in the DFS FAQ | The FAQ does not state the methodology, networks, merchant categories or contracts covered by this range | The quoted range is a merchant cost, not a universal customer surcharge |
These figures are not interchangeable price quotes. UPI rules depend on the rail, threshold and merchant category; card figures describe a ceiling or a general comparison. A merchant should budget from the effective rate in its own acquiring agreement, not from the highest or typical number in a government explainer.
What MDR means for a merchant
Merchant discount rate (MDR) is the charge associated with accepting and processing a payment. It is taken from the merchant’s settlement or otherwise billed under the acquiring arrangement. It is not the same thing as a fee that the customer sees at checkout.
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For example, a customer may pay ₹10,000 for an order while the merchant’s settlement reflects an acceptance charge. The customer’s payment amount and the merchant’s net proceeds are therefore separate accounting questions. A policy can limit or prohibit passing the charge to the buyer while still requiring a merchant-side deduction.
The applicable cost can vary with:
- the payment rail and product, such as ordinary bank-account UPI, a debit card or a credit card;
- the transaction value and whether a threshold is crossed;
- the merchant’s sector classification and eligibility for a flat or special category rate;
- the acquiring bank, payment provider, point-of-sale or online channel and contract terms; and
- any other charges stated in the written commercial agreement.
A published ceiling is not evidence that every merchant pays that ceiling. Conversely, a general “typical” range is not a promise that a particular merchant will receive the midpoint rate.
How the announced UPI MDR framework works
Standard P2M transactions above the threshold
The DFS FAQ says an MDR of 0.4% is to apply to eligible person-to-merchant UPI transactions above ₹2,000 from October 15, 2026. The same FAQ says transactions through ₹2,000 are unaffected. “P2M” means a payment to a business or other merchant; it is different from sending money to another individual.
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Under the announced percentage rule, a ₹3,000 eligible sale would produce a ₹12 MDR before considering the merchant’s contract or any separately stated charge. At ₹75,000, 0.4% equals ₹300, which is the stated cap. A ₹100,000 transaction would not produce a ₹400 MDR under that cap; the capped MDR would be ₹300.
Flat-fee and sector exceptions
The FAQ describes a ₹5 flat MDR for specified sectors, including examples such as railways, telecom, insurance and fuel, on eligible transactions above ₹2,000. It also describes a capital-market category at 0.02%, capped at ₹300. Those examples are not a blanket choice available to any merchant. A business should confirm its classification, the eligible transaction type and the provider’s implementation before using a flat fee in forecasts.
Transactions that remain outside the ordinary comparison
The FAQ says person-to-person UPI transfers remain free. It also says UPI-linked credit products follow separate credit-card or credit-line rules. A payment made by scanning a UPI QR code is therefore not automatically subject to the same cost simply because the underlying funding source is credit. Merchants need to identify whether the transaction is ordinary account-to-merchant UPI or a linked credit product.
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Who pays the UPI MDR?
The stated framework places the MDR on the merchant side. The FAQ says consumers will not pay the UPI MDR and that merchants onboarded under the framework cannot add it as a separate UPI payment fee. The Ministry of Finance’s August 8, 2026 release used the wording: “Consumers making payments will not face any transaction charges.”
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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 errorsThat prohibition concerns a separate UPI payment fee. It does not turn the merchant’s acceptance cost into a customer charge, nor does it remove the need to check the merchant agreement for settlement deductions and other contractual items.
Debit-card acceptance cost
What the 0.90% figure represents
A March 2025 Ministry of Finance PIB release, citing RBI rules, reports that debit-card MDR can be up to 0.90% across card networks. Treat this as a permitted ceiling or contextual maximum, not as a quotation for every business. An individual merchant’s negotiated or regulated rate can be lower, and the contract may distinguish between channels or merchant categories.
The same release says RuPay debit-card MDR had been zero since January 2020 under the framework it cited. That historical statement should not be expanded into a claim that every debit-card transaction, every network or every current contract is free. Check the current agreement and applicable notices for the card product being accepted.
Example budgeting at the ceiling
If a merchant’s written terms actually used the 0.90% ceiling, a ₹1,000 sale would imply ₹9 MDR and a ₹20,000 sale would imply ₹180. Those are arithmetic illustrations of the ceiling, not evidence that the merchant will be charged those amounts. The provider’s rate, eligibility and any separate contractual charges control the real settlement.
Credit-card acceptance cost
The FAQ’s general range
The DFS FAQ gives a typical credit-card MDR range of 1.5%–2.5% per transaction. It does not explain how that range was calculated or list the networks, merchant categories, transaction channels or contracts included. Use it as a broad comparison with the FAQ’s other payment methods, not as a universal rate card.
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At those endpoints, a ₹10,000 credit-card sale would correspond to ₹150–₹250 of MDR. The range alone cannot tell a merchant which endpoint applies, whether the rate is negotiated, or whether a particular product attracts a different commercial term.
Why a credit-funded UPI payment is not automatically the same
The DFS FAQ treats UPI-linked credit products separately from ordinary P2M UPI. A merchant should ask the provider how such transactions are classified, which MDR rule is applied and whether settlement reporting separates them from bank-account UPI. Applying the ordinary UPI percentage to every QR payment could misstate the cost.
Worked comparison by transaction value
The following illustrations use only the published references and make the assumptions visible. They do not replace a merchant-specific quote.
| Sale value | Ordinary UPI under the announced percentage rule | Debit card if a contract used 0.90% | Credit card at the FAQ’s stated range |
|---|---|---|---|
| ₹1,000 | Through ₹2,000, so the stated UPI MDR framework does not apply | ₹9 at the ceiling | ₹15–₹25 |
| ₹3,000 | ₹12 | ₹27 at the ceiling | ₹45–₹75 |
| ₹20,000 | ₹80 | ₹180 at the ceiling | ₹300–₹500 |
| ₹75,000 | ₹300, the stated UPI cap | ₹675 at the ceiling | ₹1,125–₹1,875 |
| ₹100,000 | ₹300 because the UPI cap applies | ₹900 at the ceiling | ₹1,500–₹2,500 |
The UPI column assumes an eligible ordinary P2M transaction and excludes sector exceptions. The debit and credit columns show mathematical outcomes of the cited reference figures, not promises about a merchant’s agreement. Taxes, rental, terminal, gateway, settlement or other charges should be added only when they appear in the provider’s written terms.
Why two merchants can pay different amounts
Merchant classification
Sector exceptions are material. A fuel, telecom, railway or insurance merchant may be assessed under a stated flat-fee category, while another business cannot simply elect that category. Capital-market transactions have their own example in the FAQ. Confirm the classification during onboarding and retain the written eligibility decision.
Threshold and cap treatment
A threshold rule creates a sharp difference between otherwise similar sales. A transaction at or below ₹2,000 is described as unaffected by the announced ordinary UPI framework; a transaction above it enters the percentage rule. For large eligible UPI sales, the cap limits the MDR even when a simple percentage calculation would be higher. Your reconciliation system should calculate from the transaction amount and then apply the relevant threshold, category and cap.
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Provider and channel terms
The same payment rail can be offered through a bank, a payment aggregator, a point-of-sale terminal or an online checkout. Contracts may quote different rates or conditions by channel, product and merchant category. Compare the effective merchant rate, settlement timing, minimums, refund treatment and every listed fee rather than relying on a marketing label such as “UPI acceptance.”
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Product identification
Do not classify a payment solely by the customer-facing interface. A QR payment funded from a bank account, a credit-linked UPI payment and a card tapped at a terminal can be governed by different rules. Settlement files should identify the product so the finance team can reconcile the correct MDR.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Policy chronology and what to verify now
The Ministry of Finance release dated August 8, 2026, said consumers would not be charged, person-to-person UPI would remain free and any merchant MDR would be limited and threshold-based. It also said that, after Parliament passed the proposed Taxation and Other Laws (Amendment) Bill, 2026, an NPCI-headed UPI and Services Steering Committee would decide whether and how MDR applied.
The DFS FAQ published on September 15 then described a framework scheduled to take effect on October 15, 2026. The official materials available for this comparison do not independently establish that every legislative and operational step between the August announcement and the scheduled date was completed. Therefore, a merchant updating books or contracts after October 15 should verify the latest Ministry of Finance, RBI and NPCI notices and obtain the provider’s effective-rate communication.
Use “scheduled” or “announced” when describing the framework unless the current official notification and your provider’s notice confirm that it is live for your transactions. This distinction matters for invoices, settlement reconciliation and customer-service scripts.
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- Identify each payment product. Separate ordinary P2M UPI, UPI-linked credit products, debit cards and credit cards in the provider dashboard or settlement report.
- Record the transaction rules. For UPI, note the ₹2,000 threshold, any applicable cap and whether your business is in a specified flat-fee or capital-market category.
- Request the written schedule of charges. Ask the acquiring bank or payment provider for the MDR by product and channel, effective date, settlement basis and all additional charges.
- Check eligibility and classification. Have the provider confirm your merchant category code or sector treatment in writing, especially if you expect the ₹5 or 0.02% examples to apply.
- Reconcile a test settlement. Match the gross transaction, MDR deduction, refunds and net amount against the contract. Use several values, including one below and one above the UPI threshold.
- Update pricing and accounting only after verification. Do not add a separate UPI fee to the buyer where the stated framework prohibits pass-through. Record merchant-side acceptance costs in the appropriate expense account.
- Set a review date. Recheck official notices and provider communications after the scheduled start because rates, implementation instructions and eligibility may be clarified or changed.
Common mistakes and how to avoid them
Treating a ceiling as a guaranteed price
“Up to 0.90%” describes the debit-card ceiling cited by the Ministry of Finance release. It does not prove that a small retailer, hospital or online seller pays 0.90%. Use the contracted rate in forecasts.
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Treating a typical range as a legal maximum
The 1.5%–2.5% credit-card figure is presented by the FAQ as typical, with no stated methodology. It should not be used as a universal maximum, minimum or quotation for a particular network.
Applying ordinary UPI rules to every QR payment
Person-to-person transfers and UPI-linked credit products are treated separately in the FAQ. Classify the funding product before calculating MDR.
Ignoring category eligibility
A ₹5 flat rate and the capital-market percentage are examples for specified categories. Applying either rate without confirmation can understate the merchant’s liability and create reconciliation differences.
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The announced UPI framework says the merchant cannot pass the UPI MDR through as a separate UPI payment fee. A checkout surcharge should not be introduced without checking the applicable rule and provider terms.
Using an outdated status statement
The August announcement and September FAQ describe different stages of policy development. State the scheduled date accurately and verify post-October-15 implementation rather than claiming that all legal steps are independently confirmed.
Which payment method is cheapest for a merchant?
For an eligible ordinary P2M sale above ₹2,000, the announced UPI percentage is lower than the FAQ’s typical credit-card range and, at the cited figures, lower than a debit-card contract charging the full ceiling. That is a comparison of published references, not a guarantee for every merchant.
For sales through ₹2,000, the FAQ says ordinary UPI transactions are unaffected by the new MDR framework. For a qualifying specified sector, the flat ₹5 example may be more predictable than a percentage rate at higher values. For a very large eligible UPI payment, the ₹300 cap limits the percentage-based charge. Cards may still be commercially important when customers need credit, when a merchant’s provider offers a different contracted rate, or when the business requires card-specific acceptance features.
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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 minuteThe practical decision is therefore not simply “UPI versus cards.” Compare the product, value band, category, cap or flat fee, provider contract, settlement terms and whether the rule is actually in force for your account. Ask for those terms in writing before changing prices or forecasting margins.
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