Under the Ministry of Finance framework scheduled to take effect on 15 October 2026, a merchant—not the customer—pays Merchant Discount Rate (MDR) on specified UPI payments. The announced charge depends on the payment type, amount and merchant category; some transactions remain at zero MDR, while others have a percentage or flat fee. As of 13 October 2026, the start date is still in the future.
What a UPI merchant charge is
MDR is a payment-acceptance fee associated with certain person-to-merchant (P2M) UPI transactions. Under the Ministry of Finance’s 15 September 2026 FAQ, the merchant pays the fee to its acquiring bank, which then distributes it among participants in the payment ecosystem, including banks and payment application providers.
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MDR is not a tax added by the Government or NPCI. The Ministry said in a 15 September 2026 release that “MDR is neither a tax nor a charge collected by the Government or NPCI.” It is also not, under the announced framework, a separate UPI surcharge that a merchant may add to a customer’s bill.
The term “UPI charge” can refer to different things in everyday conversation. Here, it means the announced merchant-side MDR for specified payments. It does not mean every UPI payment attracts a fee, and it does not mean a customer must pay MDR to complete an ordinary purchase.
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Which announced MDR treatment applies
The Ministry’s FAQ describes different treatments according to payment type, transaction value and merchant classification. Use the table as a guide to the framework scheduled for 15 October 2026, not as a statement that the rates were already in force on 13 October.
| Payment or merchant case | Announced treatment | Important qualification |
|---|---|---|
| Person-to-person (P2P) transfer | Zero MDR, regardless of amount | This is a transfer between people, not a payment to a merchant. |
| P2M payment of ₹2,000 or less | Zero MDR | Applies to the payment amount at or below the threshold. |
| General P2M payment above ₹2,000 | 0.4% MDR; capped at ₹300 for transactions of ₹75,000 and above | The Ministry’s example is ₹12 MDR on a ₹3,000 transaction, paid by the merchant to its acquiring bank. |
| Specified essential and thin-margin sectors | Flat ₹5 MDR on a payment above ₹2,000 | The listed sectors are railways, telecommunications, insurance, fuel and agricultural inputs. |
| Specified capital-market payments | 0.02% MDR, capped at ₹300 per transaction | The listed categories are mutual funds, securities, stockbrokers and dealers. |
| Small merchant classified in the P2PM category | Zero MDR on all transactions | The FAQ describes this as merchants receiving up to ₹1 lakh per month through UPI QR; the exemption can include a payment above ₹2,000 if the merchant account remains in that category. |
These categories are not interchangeable. A payment above ₹2,000 does not by itself tell you the MDR: a qualifying small merchant or a merchant in a listed special sector may receive a different treatment from a general-category merchant. The FAQ describes the categories and thresholds, but does not provide enough detail here to determine every merchant’s classification from a receipt alone.
Who pays, and whether a merchant can add MDR to your bill
For a transaction that attracts MDR under the announced framework, the merchant bears the charge through its acquiring bank. In its 15 September FAQ, the Ministry of Finance’s Department of Financial Services stated: “No, merchants on-boarded cannot pass on MDR charges to customers while accepting payments through UPI.” The Ministry also says banks have been advised to ensure merchants do not pass MDR on to buyers.
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1Fix the driver behind crashes, sound loss and screen glitches2Repair Windows errors before they cause bigger problems3Scan for outdated or missing drivers - takes under a minuteThe same FAQ says UPI application providers are prohibited from charging a platform fee or hidden charge for UPI payments. That is the Ministry’s stated position in the FAQ; it should not be confused with separate terms that may apply to a credit product or another service outside the direct account-to-merchant payment described by the framework.
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If a shop asks you to pay an extra amount specifically as “UPI MDR,” the announced policy says that cost belongs to the merchant, not the customer. Ask for the itemized bill and ask the merchant to explain any separate fee by its actual name and basis. Do not assume a vaguely described fee is MDR without checking what service it relates to.
How to work out the likely treatment
For a direct UPI payment to a merchant, check the following in order. This identifies the relevant announced category; it does not establish how an individual merchant account has been classified by its bank or payment provider.
- Identify the payee. A payment to another person is P2P; a payment to a business for goods or services is P2M. The Ministry says P2P transfers remain free regardless of amount.
- Check the amount. The announced general treatment keeps P2M payments of ₹2,000 or less at zero MDR. For amounts above ₹2,000, continue through the remaining checks rather than assuming the general rate applies.
- Check merchant status. The FAQ describes zero MDR for P2PM small merchants receiving up to ₹1 lakh per month through UPI QR. If the merchant account remains in that exempt category, the FAQ says the zero-MDR treatment includes payments above ₹2,000.
- Check the business category. The FAQ lists railways, telecommunications, insurance, fuel and agricultural inputs for a flat ₹5 on payments above ₹2,000, and specified capital-market payments for 0.02% subject to a ₹300 cap.
- Use the general rate only if no special treatment applies. The announced rate is 0.4% above ₹2,000, with a ₹300 cap for transactions of ₹75,000 and above.
- Separate direct account payments from credit-linked UPI. The FAQ says the described amendment applies specifically to direct user-account-to-merchant-account UPI transactions. Credit-linked UPI products operate under separate credit-product rules, so check the product’s own terms instead of assuming the MDR table governs it.
Examples: how the announced figures work
General-category purchase of ₹3,000
At the stated 0.4% rate, 0.004 × ₹3,000 equals ₹12. That is the Ministry’s own example of MDR paid by the merchant to its acquiring bank. It is not ₹12 payable by the customer as a UPI surcharge.
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General-category purchase of ₹75,000 or more
At exactly ₹75,000, 0.4% equals ₹300, which is also the stated cap. For transactions at or above ₹75,000, the announced standard-rate MDR is capped at ₹300 rather than continuing to rise with the transaction amount.
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Listed essential-sector payment above ₹2,000
For a merchant in one of the listed sectors, the announced treatment is a flat ₹5 on a payment above the threshold—not 0.4% of the purchase. The sector list is specific, so a business should not assume that every purchase that feels “essential” qualifies.
Specified capital-market payment
The announced rate is 0.02%, with a ₹300 maximum per transaction. For example, 0.02% of ₹10,000 is ₹2 before considering the cap. Eligibility depends on whether the payment and merchant fall within the listed capital-market categories, not merely on a customer’s description of the transaction.
Small-merchant zero MDR and QR codes
The FAQ describes the P2PM small-merchant exemption by reference to monthly UPI QR receipts of up to ₹1 lakh. It says such a merchant retains zero MDR on all transactions, including an individual payment above ₹2,000, when its account remains in the exempt category. This means the transaction threshold and the merchant’s monthly classification need to be considered together.
The FAQ says the operational design of the small-merchant fund is pending. It therefore does not establish from the information summarized here how a merchant will be placed into, monitored within or moved out of the P2PM category. A merchant seeking certainty about its own treatment should ask its acquiring bank or payment provider how the account is classified and what records or procedures apply.
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Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Why older statements about free UPI do not settle the 2026 policy
For years, official statements described UPI merchant payments as free of MDR. A Ministry release dated 18 April 2025 said MDR had been removed from P2M UPI effective January 2020 and rejected claims that GST applied to UPI payments above ₹2,000. A Lok Sabha answer dated 18 August 2025 described the then-current position under section 10A and said there was no proposal at that time to impose UPI transaction charges.
Those statements described the policy position at their respective dates. They do not, by themselves, answer what was announced later. On 8 August 2026, the Ministry described the Taxation and Other Laws (Amendment) Bill, 2026 as proposing an amendment to section 10A and said a relevant committee would decide on MDR if Parliament passed the bill. The Ministry’s 15 September 2026 FAQ subsequently set out a framework with a 15 October start date.
The official materials identified here establish the Ministry’s announced date and rates, but do not establish the final Gazette notification or operative NPCI circular. That distinction matters for anyone seeking a detailed account of the legal instrument or implementation mechanics: the FAQ’s published schedule should not be treated as proof of a specific enactment history not shown in those materials.
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What the government says will be affected
The Ministry’s 15 September 2026 release estimates that approximately 96% of merchant transactions will be unaffected under the new framework. This is a government estimate, not a measured outcome after commencement. It should not be read as a guarantee about any particular merchant, sector or customer’s transaction.
Earlier payment-incentive figures also help explain why a no-MDR policy could coexist with costs elsewhere in the payment ecosystem. A Government of India release in 2025 reported incentive payouts of ₹1,389 crore in FY2021–22, ₹2,210 crore in FY2022–23 and ₹3,631 crore in FY2023–24. These are historical incentive amounts for the stated financial years, not merchant fees and not a forecast of future MDR.
What to check when the framework is due to start
Because the announced commencement date is 15 October 2026, merchants and customers checking a charge around that date should distinguish the policy schedule from evidence of implementation in a specific account or transaction.
Quick Recap
- Merchants: ask the acquiring bank how it identifies the merchant category, handles the P2PM monthly QR-receipt threshold and calculates any applicable MDR.
- Customers: keep the bill or payment confirmation if a fee is described as UPI MDR; the Ministry’s FAQ says a merchant cannot pass MDR on to a buyer.
- Businesses in listed sectors: verify that the acquiring bank has applied the relevant category rather than presuming the flat or capital-market rate applies.
- Users of credit-linked UPI: review the credit product’s terms separately from a direct debit from a user’s bank account to a merchant.
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