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Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →Merchant discount rate (MDR) is the fee charged within the payment-acceptance ecosystem when a merchant accepts a digital payment. It is a merchant-side cost, not a government tax. Under the Ministry of Finance framework announced on 15 September 2026, ordinary UPI person-to-person payments remain free regardless of amount, UPI merchant payments up to ₹2,000 remain free, and qualifying small merchants can retain zero MDR on all UPI transactions. Some specified larger merchant payments carry category-based charges, while customers are not supposed to be billed MDR.
Card MDR has no single India-wide percentage. It depends on the card network and type, merchant category, acquiring bank, contract, transaction amount and effective date. A dated Indian Bank schedule illustrates the range, but its figures are not a universal tariff.
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MDR in plain English
When a customer pays a shop, website or service provider electronically, the amount does not move directly from the customer to the merchant in one step. Banks, payment networks, payment application providers and the acquiring institution that maintains the merchant relationship perform authorisation, routing, settlement and risk checks. MDR is the fee distributed among those participants for providing that acceptance service.
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One free scan finds every outdated or missing driver and matches the right update for your exact hardware.Free scan · exact hardware matchThe Ministry of Finance stated in its 15 September 2026 Press Information Bureau release: “MDR is neither a tax nor a charge collected by the Government or NPCI.” The fee is generally deducted from the merchant’s settlement or charged under the merchant’s acquiring agreement. A merchant receiving ₹10,000 therefore may receive less than ₹10,000 when an MDR applies, with the exact deduction determined by the applicable rail, category and contract.
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MDR should not be confused with a customer-facing convenience fee, a late fee or GST. GST can be charged on the MDR amount under a bank’s schedule, which makes the merchant’s total cost higher than the headline percentage.
What the current UPI framework says
The current position below is the Ministry of Finance statement dated 15 September 2026 and applies to India. It distinguishes between person-to-person (P2P) transfers and person-to-merchant (P2M) payments, then applies special rules to merchant categories and eligibility.
| UPI transaction or merchant status | MDR treatment in the 15 September 2026 framework | Qualification |
|---|---|---|
| UPI P2P | Free | The release says this applies regardless of transaction amount. |
| P2M payment up to ₹2,000 | Free | The rule described by the Ministry covers merchant payments up to ₹2,000. |
| Qualifying small merchant in the P2PM category | Zero MDR on all transactions | The merchant must receive no more than ₹1 lakh per month through UPI QR under the stated P2PM category. |
| Specified general P2M payment above ₹2,000 | 0.4%; capped at ₹300 for a transaction of ₹75,000 or more | The rate applies only to transactions covered by the specified category and framework. |
| Named essential or thin-margin sectors above ₹2,000 | Flat ₹5 | The release names railways, telecommunications, insurance, fuel and agricultural inputs among the sectors. |
| Capital-market payment | 0.02%; capped at ₹300 | Applies to payments relating to mutual funds, securities, stockbrokers and dealers as described in the release. |
The Ministry estimates that about 96% of merchant transactions will remain unaffected and that MDR would apply to about 4%. Those are official estimates, not a guarantee for every merchant’s transaction mix.
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P2P is different from paying a business
A transfer from one individual to another is P2P even when the amount is high, provided it is genuinely a person-to-person transfer. Paying a shop, clinic, school or online seller is P2M. The P2M classification, merchant category and eligibility status determine whether a charge can apply.
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The small-merchant condition matters
“Small merchant” is not simply a description a business can choose on an app. The September release ties zero MDR on all transactions to qualifying merchants receiving up to ₹1 lakh per month through a UPI QR in the P2PM category. A merchant should confirm how its acquiring bank records the category and monthly receipts rather than assuming that every small-looking business automatically qualifies.
How much would a UPI MDR be?
For a covered general P2M payment above ₹2,000, multiply the transaction amount by 0.004 and then apply the ₹300 cap when the transaction is ₹75,000 or more. These examples show the arithmetic before any applicable tax on the fee.
- ₹5,000 payment: 0.4% equals ₹20.
- ₹50,000 payment: 0.4% equals ₹200.
- ₹75,000 payment: 0.4% equals ₹300, which is also the cap.
- ₹1,00,000 payment: 0.4% would be ₹400, but the stated cap limits MDR to ₹300.
A qualifying essential-sector transaction above ₹2,000 uses the stated flat ₹5 amount instead of the general percentage. A capital-market payment uses 0.02% (0.0002), subject to its ₹300 cap. For example, 0.02% of ₹1,00,000 is ₹20; 0.02% of ₹20,00,000 is ₹400, so the cap would reduce that fee to ₹300 if the payment falls within the described capital-market category.
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Scan for outdated or missing drivers - takes under a minuteDriver Scan →Repair Windows errors before they cause bigger problemsFix Now →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →The framework says customers will not pay MDR. The Ministry says banks have been advised to ensure that merchants do not pass MDR to customers and that UPI application providers are prohibited from adding platform fees or hidden charges under the described framework. Treat those as requirements stated in the release; the merchant should still inspect its settlement statement and report a suspected violation to the relevant bank or provider.
Card MDR is not one universal rate
Card pricing is set through the merchant’s acquiring arrangement and varies by card product, merchant classification and bank. Indian Bank’s POS notice effective 1 September 2024 is a useful published example, not an industry-wide schedule.
| Card or merchant grouping in the Indian Bank notice | MDR shown | Cap or other condition |
|---|---|---|
| Debit card, small merchant with turnover up to ₹20 lakh | 0.40% | Capped at ₹200 per transaction. |
| Debit card, other merchants | 0.90% | Capped at ₹1,000 per transaction. |
| Standard credit card | 1.75% | No cap stated in the cited schedule. |
| Premium credit card | 2.20% | No cap stated in the cited schedule. |
| Super-premium credit card | 2.60% | No cap stated in the cited schedule. |
| International, prepaid or commercial card | 2.60% | No cap stated in the cited schedule. |
| RuPay debit card | Zero MDR in the notice | Applies under that bank’s stated POS schedule. |
| UPI QR transaction on POS | Zero MDR in the notice | Applies under that bank’s stated POS schedule. |
The Indian Bank notice says GST is charged on the MDR amount. Thus, a 1.75% credit-card MDR does not necessarily equal the merchant’s final expense: GST on the fee is an additional line item when applicable. The notice’s date, card definitions and merchant agreement control; another acquiring bank may quote different figures.
Why the card percentage changes
Credit cards generally have higher published MDR than debit cards in the cited schedule because the acceptance arrangement incorporates different network, issuer and risk economics. Premium, international, prepaid and commercial products are separate categories there. A merchant should therefore ask its acquirer whether the quoted rate is blended or interchange-plus, which card classes are included, whether caps apply, and how GST is shown.
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Special case: RuPay credit card through a UPI QR
A UPI payment funded by a RuPay credit card is not the same cost category as an ordinary UPI payment debited from a bank account. Indian Bank’s notice effective 20 May 2024 lists a separate schedule for RuPay credit-card transactions through its UPI QR service.
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| Merchant category in the notice | MDR | Important condition |
|---|---|---|
| Specified industry-program categories | 1% | Exclusive of GST. |
| Other listed merchant categories | 2.10% | Exclusive of GST. |
| Small merchant, offline static-QR-standee category, UPI transaction up to ₹2,000 | No MDR | The notice limits the exemption to the stated merchant type, QR format and amount. |
The industry categories listed by the notice include insurance, mutual funds, government, education, railways, agriculture, debt collections, fuel, petroleum products, telecommunications, utilities and hospitals. Because the notice is bank-specific and contains its own category definitions, a merchant should not apply the 1% or 2.10% figures to another bank’s QR arrangement without written confirmation.
Who actually bears the cost?
For UPI transactions covered by the September 2026 framework, MDR sits inside the merchant payment ecosystem. The customer is not the intended payer, and the government does not collect the fee as a tax. The merchant’s practical burden is the net settlement deduction or invoice charge created by its acquiring agreement.
For cards and RuPay credit-card-on-UPI transactions, the merchant normally bears the contracted MDR, plus GST on that fee when the schedule provides for it. A business can build payment costs into its overall pricing, but it should not label an added checkout amount as “MDR” unless the applicable rules and contract permit that treatment. The Ministry specifically says banks should prevent merchants from passing UPI MDR to customers.
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How a merchant should identify its real MDR
- Identify the payment rail. Separate ordinary bank-account UPI, RuPay credit card through UPI QR, debit card and each credit-card class. Do not use one blended number until every rail is classified.
- Check the merchant category code and eligibility. Confirm whether the business is in an essential, capital-market or other specified category and whether it meets the ₹1 lakh monthly P2PM small-merchant condition.
- Check the amount threshold and cap. For UPI, note whether the payment is at or below ₹2,000, above ₹2,000, or at least ₹75,000. For cards, read any per-transaction cap in the bank schedule.
- Read the effective date. Compare the date on the bank’s notice with the date on the acquiring contract. A 2024 bank schedule cannot automatically be treated as the rate in force in 2026.
- Separate MDR from GST. Look for the percentage deduction, the rupee fee and GST as distinct settlement or invoice lines.
- Reconcile a sample settlement. Take the gross transaction, subtract the stated MDR and tax, and compare the result with the amount deposited. Escalate an unexplained difference to the acquiring bank.
Historical context: why older numbers still appear online
Older articles often quote figures that describe previous policy, not the September 2026 framework. A Ministry of Finance FY 2024–25 scheme document cited a Reserve Bank of India figure of up to 0.90% for debit-card MDR and an NPCI figure of up to 0.30% for UPI P2M MDR as historical background. It also noted that statutory amendments made MDR zero for RuPay debit-card and BHIM-UPI transactions from January 2020. Those figures should not be substituted for the later UPI categories and rates.
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The same government material records incentive payouts of ₹1,389 crore in FY 2021–22, ₹2,210 crore in FY 2022–23 and ₹3,631 crore in FY 2023–24. The FY 2024–25 scheme note describes an incentive for qualifying low-value BHIM-UPI P2M transactions up to ₹2,000. These are government support payments and policy background, not a merchant’s current MDR invoice.
An 8 August 2026 Ministry release had said any future MDR would be threshold-based and nominal, “not blanketly levied to all.” The 15 September release later supplied the detailed categories, percentages, rupee amounts and caps described above. For the position as of 13 October 2026, the later release is the relevant policy statement.
Common mistakes when comparing payment costs
- Calling MDR a tax: MDR is an ecosystem fee; GST may apply to the fee, but the two are different items.
- Using 0.4% for every UPI payment: That percentage is for specified general P2M transactions above ₹2,000, not P2P transfers, every merchant payment or every merchant category.
- Assuming ₹2,000 means every QR payment is free: The framework has separate eligibility rules for qualifying small merchants and a separate RuPay credit-card UPI notice with its own conditions.
- Quoting a bank’s card schedule as an industry rate: The Indian Bank figures are tied to its products, date and categories.
- Ignoring the funding source: A RuPay credit card routed through UPI QR can have a different MDR from a bank-account UPI transaction.
- Leaving out GST: A percentage shown as MDR may not be the final amount debited from the merchant.
- Ignoring caps: A percentage calculation above the stated cap overstates the actual fee for capped transactions.
A practical decision framework for merchants
When negotiating or reviewing acceptance costs, compare each rail on the same six axes: payment rail and funding source; merchant category and eligibility; transaction threshold; cap; GST treatment; and the bank or acquirer’s effective-date contract. Ask for a written rate card that identifies standard, premium, international, prepaid and commercial cards separately. For UPI, request confirmation of the P2PM classification and how the ₹1 lakh monthly condition is measured.
Keep settlement reports for each month. If the rate changes, the report should show whether the cause was a new card type, a category reclassification, a threshold crossing, a cap, GST or a revised contract. This record is more reliable than applying a headline MDR percentage to every payment.
Bottom line
As of 13 October 2026, ordinary UPI P2P transfers and UPI merchant payments up to ₹2,000 are described as free, with zero MDR continuing for qualifying small P2PM merchants within the stated ₹1 lakh monthly QR-receipt condition. Specified larger UPI payments can carry 0.4%, a flat ₹5 or 0.02%, depending on category and caps. Card MDR must be read from the relevant bank and merchant agreement; the published Indian Bank examples range from capped debit-card rates to 2.60% for several card classes, with GST on the MDR amount. The only dependable way to know a merchant’s cost is to match the payment rail, card or funding source, category, threshold, cap, tax and effective date to the settlement contract.
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