UPI MDR from 15 October 2026: what merchants pay and who stays free

A 0.4% UPI MDR is scheduled on merchant payments above ₹2,000 from 15 October 2026. See the ₹300 cap and the small-merchant exemption.

28 September 2026 · 11 min read

From 15 October 2026, UPI payments to merchants above ₹2,000 are scheduled to carry a small fee called the MDR. If you run a shop, a home business or an online store, you probably have three questions about these new UPI charges. How much will I pay? Am I exempt? And does it matter that the money goes straight into my own bank account?

This guide answers each one using the government’s own release and FAQ. Plain rules, worked examples and a short checklist.

Last checked 28 September 2026.

A petition against the new charge was listed for hearing in the Supreme Court on 28 September 2026, so the start date could still change. We will update this article if it does.

Quick answer

A 0.4% MDR is scheduled on merchant (P2M) UPI payments above ₹2,000 from 15 October 2026, capped at ₹300 for payments of ₹75,000 and above.
Payments of ₹2,000 or less stay free of MDR for every merchant, big or small.
Small merchants in NPCI’s P2PM category who receive up to ₹1 lakh a month through UPI QR pay zero MDR, even on single payments above ₹2,000.
The MDR also applies to payments that go straight into your own bank account. Your account category decides it, not the route the money takes.
Customers never pay it, and you cannot pass it on to them.

What MDR means

MDR stands for merchant discount rate. It is a fee a merchant pays for accepting a digital payment. That is the whole “mdr charges meaning” in one line.

On UPI, you pay the MDR to your acquiring bank, the bank that set up your merchant UPI ID or QR code (FAQ Q35). That bank then shares it with others in the payment chain: banks, payment service providers and UPI app providers (PIB release).

Two things MDR is not:

It is not a tax.
It is not collected by the government or by NPCI.

The government says the MDR will apply to only about 4% of merchant transactions (PIB release). In other words, most merchant payments will carry no MDR at all.

What changes on 15 October 2026

Under the new UPI rules, the MDR depends on the size of each payment. For most merchants there are three bands.

Payment size	MDR	Example
Up to ₹2,000 (including exactly ₹2,000)	₹0	₹1,500 payment: ₹0
Above ₹2,000 and below ₹75,000	0.4% of the whole payment	₹5,000 payment: ₹20 · ₹50,000 payment: ₹200
₹75,000 and above	0.4%, capped at ₹300	₹1,00,000 payment: ₹300

The arithmetic, step by step

₹1,500: this is not above ₹2,000, so the MDR is ₹0.
₹5,000: 0.4% of ₹5,000 is ₹20.
₹50,000: 0.4% of ₹50,000 is ₹200.
₹1,00,000: 0.4% of ₹1,00,000 would be ₹400. That is more than the cap, so you pay ₹300.

The cap starts at ₹75,000 because 0.4% of ₹75,000 is exactly ₹300. Any payment from ₹75,000 upward costs you ₹300 at most.

The 0.4% applies to the whole payment

Once a payment crosses ₹2,000, the 0.4% is charged on the full amount, not just the part above ₹2,000. The FAQ gives its own example: a ₹3,000 payment costs the merchant ₹12 (FAQ Q35). So a ₹2,000 payment costs ₹0, while a ₹2,001 payment costs about ₹8.

Some sectors pay a flat ₹5

Payments above ₹2,000 for railways, telecom, insurance, fuel and agricultural inputs carry a flat ₹5 per payment instead of 0.4% (PIB release). Public utilities such as electricity, water and piped gas also pay a flat ₹5 above ₹2,000 (FAQ Q41).

Two other categories have their own rules:

Capital markets (mutual funds, securities, stockbrokers and dealers): 0.02%, capped at ₹300 per payment.
Education fees above ₹2,000: the FAQ says these get a flat fee or a capped rate, but it does not give a number.

What does not change

P2P transfers between people stay free at any amount, for sender and receiver, including transfers between your own accounts (PIB release, FAQ Q16).
UPI AutoPay mandates carry no prescribed MDR (FAQ Q22).
Credit on UPI, such as a RuPay credit card linked to UPI, sits outside this framework and follows separate credit product rules (FAQ Q36).

Who stays free

Two groups pay no MDR on UPI payments.

Every merchant, on payments of ₹2,000 or less

This rule is in the law itself. The gazette notification bars any bank or system provider from charging, directly or indirectly, the person making or receiving a UPI payment of up to ₹2,000 (Gazette S.O. 5067(E) via TaxGuru). It applies to large businesses as well as small ones.

Small merchants in the P2PM category

NPCI has a category called P2PM, short for person-to-person-merchant. It is meant for small vendors who receive payments directly into their own personal bank accounts (FAQ Q24).

If your UPI ID is in this category and you receive up to ₹1 lakh a month through UPI QR codes, you pay zero MDR on every payment. That includes single payments above ₹2,000 (FAQ Q26).

A few details matter here:

There is no annual turnover test. Your monthly UPI receipts and the way your bank has categorised your account decide it.
You do not need GST registration to qualify (FAQ Q28).
Being small is not enough on its own. The exemption depends on your account being in the P2PM category. If your bank set you up as a regular merchant, ask it where you stand.

How the 3-month move works

Banks and payment service providers track how much UPI money comes in each month. You move from P2PM to the regular P2M category only after your inward UPI credits cross ₹1 lakh a month for 3 months in a row (FAQ Q29).

So one busy festival month does not move you. Three months in a row above ₹1 lakh does.

Does it apply when money goes straight to your bank account?

Yes. This is the most common mix-up about MDR on UPI.

Many merchants assume MDR only hits payments that pass through a payment gateway or aggregator. The official FAQ says otherwise. It says the MDR applies “specifically to direct users-account-to-merchant-account UPI transactions” (FAQ Q36).

Picture a customer who scans your QR or pays your merchant UPI ID. The money lands directly in your own current or savings account, with no aggregator in between. If that payment is above ₹2,000, it can still carry MDR.

What decides it is how your merchant account is categorised (FAQ Q26). The route the money takes does not matter. P2PM small merchants stay at zero. Regular merchants pay on payments above ₹2,000.

Who collects it and how you will see it

You pay the MDR to your acquiring bank. The bank then shares it with other banks, payment service providers and UPI app providers (PIB release).

An amount equal to 5% of total MDR collections goes into a fund to help small merchants adopt UPI. Its framework is to be finalised in consultation with RBI within three months (FAQ Q27).

How will the charge show up on your side? The official texts do not say whether it will be taken from each settlement or debited separately. That is up to each bank. Kotak Mahindra Bank’s merchant guidance advises checking how the charge will show on your settlement statements (Kotak Mahindra Bank). Ask your own bank before mid-October.

Can you pass it on to customers?

No. The FAQ says merchants cannot pass MDR charges on to customers while accepting UPI payments (FAQ Q34). The PIB release adds that banks have been told to make sure merchants do not.

Customers pay nothing extra for UPI payments. MDR is a charge within the merchant side of the system.
UPI apps are not allowed to charge platform fees or hidden charges.
No official source allows a UPI surcharge. So do not add one at the counter or at checkout.
The government and the Indian Banks’ Association are reportedly working on a way to check that the MDR is not passed on (Business Today).

Does GST apply?

Yes, but on the fee, not on the payment. As reported by Business Standard and Business Today, 18% GST applies to the MDR fee, not to the UPI payment amount.

Here is an example. On a ₹10,000 payment, the MDR is ₹40. GST is 18% of that ₹40, not 18% of ₹10,000.

If you are GST-registered, you can usually claim this GST back as input tax credit (ITC). That works when your bank gives you a GST invoice or a statement that shows the charge separately.
If you deal in exempt goods or services, you may not be able to use that credit.
No MDR means no GST on it. For payments of ₹2,000 or less and for P2PM merchants there is no MDR fee for GST to apply to, a point NPCI has also made (ANI).
The official MDR release and FAQ do not include a GST notification specific to UPI MDR. How this applies to you depends on your business, so check with your accountant.

What to do before 15 October

Nothing is mandatory. Your existing QR codes and soundboxes keep working, and you do not need to re-register or visit a branch (FAQ Q25). A few sensible steps still help:

Ask your bank which category your UPI ID is in. P2PM means zero MDR. Regular P2M means 0.4% on payments above ₹2,000.
Ask how the MDR will appear. Find out whether it will be taken from settlements or debited separately, and read your bank agreement if you have one.
Check your settlement statements from mid-October. Payments above ₹2,000 may settle slightly lower, so match them against your orders.
Keep your QR as the main way to get paid if you are a small merchant. The official wording describes the P2PM exemption as payments received through UPI QR codes. It does not say whether other methods count, so ask your bank if you use anything else.
Sort out your GST paperwork. If you are GST-registered, ask your bank for a GST invoice or a statement that shows the charge.
Keep your records. A clear list of which order each payment belongs to makes every one of these checks easier.
Do not add a UPI surcharge for customers.

Where UPINOW fits

UPINOW is a payment confirmation tool. Your customers pay with any UPI app, straight into your own bank account. UPINOW reads your bank’s payment alert emails and confirms who paid for which order. We only read payment alert emails from your bank. Nothing else. You can disconnect anytime, and our security page explains how it works.

Here is how that sits next to the new UPI MDR:

UPINOW charges 0% per transaction and adds no fee on top. You pay a flat monthly plan instead. See our plans.
Any MDR above ₹2,000 comes from your bank, not UPINOW. It is charged under the NPCI framework, based on your account category.
UPINOW does not change your MDR category. Only your bank’s categorisation decides whether MDR applies to you.
UPINOW gives you a clean record. Every confirmed payment is matched to its order, which helps when you check your settlement statements after 15 October.

UPINOW never holds or moves your money, and it will never ask for your UPI PIN, OTP or bank password. If you want to set it up, start here.

Sources

Questions merchants ask

Does UPI charge for transactions above ₹2,000?

From 15 October 2026, a 0.4% MDR is scheduled on UPI payments to merchants above ₹2,000, capped at ₹300 for payments of ₹75,000 and above. The merchant pays it to its bank, not the customer. Person-to-person transfers stay free at any amount.

What is MDR in UPI?

MDR, or merchant discount rate, is a fee a merchant pays its bank for accepting a digital payment. On UPI it is shared among banks, payment service providers and UPI app providers. It is not a tax, and the government and NPCI do not collect it.

Who pays MDR charges?

The merchant pays MDR to its acquiring bank. Customers never pay it, and UPI apps are not allowed to charge platform fees or hidden charges.

Is it legal to charge MDR from customers?

No. The official FAQ says merchants cannot pass MDR on to customers when they accept UPI payments, and banks have been told to make sure they do not.

How can I avoid MDR charges?

Payments of ₹2,000 or less carry no MDR for any merchant, and small merchants in the P2PM category who receive up to ₹1 lakh a month through UPI QR pay none at all. Beyond that, your account category decides it, not whether the money goes straight to your bank. Ask your bank which category you are in.

Is there GST on MDR charges?

As reported by Business Standard and Business Today, 18% GST applies to the MDR fee, not to the payment amount. GST-registered merchants can usually claim it back as input tax credit when the bank shows the charge separately, so check with your accountant.