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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driver behind crashes, sound loss and screen glitches2Repair Windows errors before they cause bigger problems3Scan for outdated or missing drivers - takes under a minuteThe NPCI-headed UPI and Services Steering Committee sets UPI merchant discount rate (MDR) parameters, fee-distribution models and category caps. That is the answer in the Department of Financial Services (DFS) FAQ published 15 September 2026. The announced schedule is due to begin on 15 October 2026: direct account-to-merchant (P2M) UPI payments above ₹2,000 carry a 0.4% MDR, with a ₹300 ceiling for payments of ₹75,000 or more. The FAQ describes bank and payment-service-provider checks for small-merchant exemptions, but the detailed legal enforcement, complaint, audit and penalty machinery is not established in the official material available here.
This distinction matters because the rates were announced before their commencement. A DFS FAQ says a government notification was issued on 14 September and that NPCI issued a detailed circular on 15 September after the steering committee’s deliberations. As of 13 October 2026, the framework is scheduled rather than already in force.
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Who actually decides UPI MDR?
The DFS FAQ names the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI), as the body that decides operational parameters, fee-distribution models and category caps. In practical terms, this is the policy-setting and implementation-design forum for the announced MDR schedule.
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Scan for outdated or missing drivers - takes under a minuteDriver Scan →Clear out junk files and repair common Windows errorsFree Scan →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →The government’s role is reflected in the notification reported for 14 September 2026, while NPCI’s role is reflected in the circular reported for 15 September. Those instruments establish the framework that banks, payment-service providers (PSPs), acquirers and merchants must operationalise. The available FAQ does not, however, identify a separate officer who approves each individual deduction or describe a single consumer-facing enforcement portal.
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The DFS FAQ is an institutional document rather than a named person’s statement. Its wording is: “The operational parameters, fee distribution models, and category caps are decided by the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI).” That is the clearest available attribution for who sets the caps.
When do the announced rates start?
The stated commencement date is 15 October 2026. Until that date, merchants should not treat the announced percentages as proof that a particular provider has already begun deducting them. The actual amount on a settlement statement will also depend on the merchant’s category, payment type and contractual arrangement with its acquiring bank or PSP.
The schedule applies to direct bank-account UPI payments made to merchants. Credit-linked UPI flows are treated separately: the FAQ says RuPay credit cards linked to UPI and bank credit lines follow their own credit-product rules. Do not apply the 0.4% account-to-merchant formula automatically to those transactions.
General P2M rate and ₹300 ceiling
For ordinary P2M transactions above ₹2,000, the announced MDR is 0.4%. For transactions of ₹75,000 and above, the fee is capped at ₹300 per transaction. The cap limits the fee; it does not create a second percentage rate.
| Payment amount | 0.4% calculation | Announced MDR | Why |
|---|---|---|---|
| ₹2,000 or less | Not applicable under the general schedule | Not stated as a general MDR charge | The general rate is described for payments above ₹2,000; category rules may differ. |
| ₹3,000 | ₹12 | ₹12 | 0.4% of ₹3,000. |
| ₹50,000 | ₹200 | ₹200 | Below the ₹75,000 cap threshold. |
| ₹75,000 | ₹300 | ₹300 | The percentage calculation reaches the ceiling. |
| ₹1,00,000 | ₹400 | ₹300 | The ₹300 per-transaction cap replaces the higher percentage result. |
These examples come from the DFS FAQ dated 15 September 2026. They describe the announced schedule, not a provider-specific invoice or a guarantee about taxes or other contractual charges that might appear separately on a settlement statement.
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How the P2PM small-merchant exemption works
The FAQ uses a separate P2PM category for micro-merchants. A vendor receiving up to ₹1 lakh per month through QR under that category is described as having zero MDR. The exemption is based on the merchant’s classification and monthly inward volume, not simply on the value of one payment.
A payment above ₹2,000 does not automatically remove the exemption
A small merchant can therefore receive an individual payment above ₹2,000 without automatically becoming liable for the general MDR, provided the merchant remains within the stated P2PM category. The FAQ specifically addresses this point because the general P2M threshold and the P2PM monthly test answer different questions.
When the merchant moves to P2M
Acquiring banks and PSPs are instructed to monitor inward transaction velocity. If receipts exceed ₹1 lakh per month for three consecutive months, the FAQ says the merchant transitions to P2M. Once classified as P2M, the merchant is assessed under the applicable P2M or special-category schedule rather than the P2PM zero-MDR treatment.
- The acquirer or PSP records the merchant’s inward QR volume for each month.
- It checks whether the monthly amount is above ₹1 lakh.
- It looks for that condition in three successive months, rather than reacting to a single unusually large payment.
- If the condition is met, the merchant is moved from P2PM treatment to P2M treatment under the stated framework.
The FAQ does not state the exact date on which a reclassification becomes visible in settlement reports, whether a merchant receives a warning before the third month, or how a disputed classification is corrected. Those operational details should be obtained from the merchant’s acquiring bank or the underlying NPCI circular.
Special rates for industry-program categories
Not every merchant uses the general 0.4% schedule. The FAQ describes a group of industry-program categories—including railways, telecom, insurance and fuel—with a flat ₹5 fee for transactions above ₹2,000. The list and explanatory material also refer to utility payments and education, but the education response does not give one universal rate; it describes flat-fee or capped structures.
Category treatment depends on the merchant classification or code used by the acquirer. A business should not assume that its trade name alone qualifies it for the ₹5 treatment. Before applying the rate, confirm the category definition and the code recorded for the merchant in the detailed circular or in the acquirer’s written schedule.
Capital-market transactions
The FAQ gives capital markets a separate announced rate of 0.02%, capped at ₹300. It includes mutual funds, securities, stockbrokers and dealers in this description.
For example, 0.02% of ₹1,00,000 is ₹20, so the cap does not affect that payment. At ₹15,00,000, the percentage calculation is ₹300 and reaches the ceiling; a larger payment remains limited to ₹300 under the stated capital-market schedule. The merchant’s classification still needs to match the category covered by the FAQ.
Who pays, and which UPI users remain free?
- Consumers: The FAQ says ordinary consumers do not pay UPI charges.
- Person-to-person transfers: P2P transfers remain free under the stated framework.
- Merchant pass-through: Merchants cannot pass the prescribed MDR through to buyers as a separate surcharge.
- Recurring mandates: Recurring mandates and AutoPay do not attract the prescribed MDR, according to the FAQ.
- Credit-linked UPI: RuPay credit cards linked to UPI and bank credit lines follow separate credit-product rules.
The fee is therefore a merchant-side acceptance cost in the direct account-to-merchant cases covered by the announcement. A merchant may still have other contractual costs, such as settlement or service fees, but those should not be presented to a customer as the prescribed MDR.
How are the caps enforced?
The most concrete enforcement mechanism described in the available material is the P2PM monitoring process. Acquiring banks and PSPs use inward-transaction velocity checks to identify merchants that have crossed the ₹1 lakh monthly limit for three consecutive months. This is a classification control rather than a rule that inspects only the amount of an individual payment.
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For the overall cap schedule, the steering committee sets the operational parameters and category ceilings, while the government notification and NPCI circular provide the instruments that participants are expected to implement. The accessible FAQ and indexed government summary do not establish all of the following details:
- which party makes each deduction at the payment or settlement stage;
- the exact reconciliation format for showing the 0.4%, ₹5 or 0.02% calculation;
- a formal merchant complaint route for an alleged overcharge;
- the scope of audits or data-retention powers; or
- the penalties, refunds or interest that would apply if a participant charged above a cap.
It would therefore be inaccurate to promise a particular refund, penalty or regulator portal without the full Gazette notification or NPCI circular. Merchants should treat a published provider schedule and their settlement reports as the first documents to compare, and escalate discrepancies through the contractual support channel while asking for the applicable NPCI category rule in writing.
How a merchant can verify its own MDR
Where a business has a choice of acquiring bank or PSP, compare providers on more than the headline percentage. Use the following checks before the 15 October start date and again after the first affected settlement.
| Check | What to confirm | Why it matters |
|---|---|---|
| Published MDR schedule | The 0.4% general rate, ₹300 ceiling, ₹5 industry rate or 0.02% capital-market rate, with effective dates. | A generic “UPI fee” label may conceal category-specific treatment. |
| Merchant category or MCC | The code assigned to the outlet and the category definition used by the acquirer. | Special rates depend on classification, not only on the business name. |
| P2PM status | Whether the outlet is recorded as P2PM and how monthly QR receipts are measured. | The ₹1 lakh threshold and three-month test determine whether zero MDR continues. |
| Settlement statement | Gross amount, MDR calculation, cap application and net settlement shown separately. | It lets the merchant test the arithmetic on each affected transaction. |
| Reconciliation and support | Statement exports, correction timelines and a named support route. | These are essential if a classification or deduction appears wrong. |
| Other contract fees | Any non-MDR service, rental, settlement or dispute charges. | The announced cap does not automatically eliminate unrelated contractual fees. |
For a general P2M payment, calculate 0.004 multiplied by the transaction value, then apply the ₹300 maximum once the value reaches ₹75,000. For a listed industry category, apply the stated flat amount only when the merchant code and transaction type meet the category definition. Keep the original settlement file so a later adjustment can be tied to a specific payment.
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Why the change is significant after years of zero MDR
The previous framework was built around a statutory prohibition. Income Tax Department guidance explains that Section 10A of the Payment and Settlement Systems Act, 2007 covered prescribed electronic modes including BHIM-UPI and UPI QR, and that MDR did not apply to those modes from 1 January 2020. The guidance quotes Circular No. 32/2019 dated 30 December 2019: “any charge including the MDR (Merchant Discount Rate) shall not be applicable on or after 01st January, 2020 on payment made through prescribed electronic modes.”
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PIB stated in April 2025 that MDR for P2M UPI was zero at that time. The 2026 announcement describes an amended statutory framework and a new notification, so the earlier zero-MDR description should not be carried forward beyond the scheduled 15 October 2026 transition.
What the transaction figures imply
The DFS FAQ says more than 95% of UPI P2M transaction volume is in payments up to ₹2,000. It also states that August 2026 recorded 2,451 crore UPI transactions worth ₹29.9 lakh crore. These are figures reported in the FAQ; they were not independently checked against NPCI’s monthly statistical release in the material available here.
If the 95% distribution remains representative, the general above-₹2,000 rate is aimed at a minority of transaction volume, while the P2PM classification protects qualifying micro-merchants. The actual cost for any business still depends on its ticket sizes, monthly QR receipts and category code, not on the aggregate UPI total.
Practical checklist for 15 October 2026
- Ask the acquiring bank or PSP to identify the merchant category code and whether the outlet is P2PM, ordinary P2M or a special industry category.
- Request the written MDR schedule effective 15 October 2026, including the ₹300 cap and any category-specific flat or percentage rate.
- Record monthly QR receipts so the ₹1 lakh P2PM threshold can be tested across three consecutive months.
- Confirm that customer-facing receipts do not add a separate MDR surcharge.
- After the first affected settlement, recompute representative transactions such as ₹3,000, ₹50,000 and ₹1,00,000 and compare the results with the statement.
- Keep settlement reports and support correspondence if a category, cap or reclassification appears inconsistent.
- For credit-linked UPI payments, obtain the separate credit-product pricing rather than applying the direct-account formula.
The announced framework gives merchants a rate schedule and a defined P2PM monitoring test, but it does not, in the available public wording, answer every enforcement question. The safest approach is to verify classification and arithmetic with the acquirer, retain transaction-level records and avoid assuming that a historical zero-MDR rule remains applicable after 15 October.
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