From 15 October 2026, a 0.4% MDR applies to Person-to-Merchant (P2M) UPI transactions above Rs 2,000, with a maximum of Rs 300 per transaction on payments of Rs 75,000 and above. Small merchants under the P2PM category, all payments up to Rs 2,000, and all person-to-person transfers remain free.
MDR stands for Merchant Discount Rate. It is a small fee a business pays for accepting a digital payment. The fee is cut before the money reaches your account, so your bank credit will be slightly less than the bill amount.
This is not new in India. Credit cards carry 1.5% to 2.5%. Debit cards go up to 0.90%. UPI has been free for merchants until now.
It is also worth being clear about what MDR is not. NPCI has stated that MDR is not a tax and the government does not collect it. The money is shared among the banks, payment service providers, and apps that run the payment, and NPCI says it will go towards infrastructure, cybersecurity, innovation, and customer service. A Finance Ministry clarification has confirmed that the charge sits inside the merchant payment ecosystem and will not be levied on customers.
| UPI payment amount | MDR | MDR amount |
| ₹2,000 | 0% | ₹0 |
| ₹3,000 | 0.4% | ₹12 |
| ₹5,000 | 0.4% | ₹20 |
| ₹10,000 | 0.4% | ₹40 |
| ₹50,000 | 0.4% | ₹200 |
| ₹75,000 | 0.4%, subject to cap | ₹300 |
| ₹1,00,000 | Capped | ₹300 |
Source: NPCI MDR FAQ, 15 September 2026
The ₹300 cap is important for large transactions. For example, 0.4% of ₹1,00,000 is ₹400, but the MDR stops at ₹300.
Note: The MDR rates are exclusive of GST as applicable. Current tax reporting indicates that 18% GST is charged on the MDR itself, not on the entire UPI payment value.
No.
The new MDR is a merchant-side charge. Customers will continue to make UPI payments without paying MDR, and person-to-person UPI transactions remain free regardless of the amount transferred.
Payments made to merchants of up to ₹2,000 also remain free under the new framework. Eligible transactions covered by the zero-MDR small-merchant framework remain free as well.
Merchants cannot add the MDR as a separate charge to the customer’s bill.
This is where the P2PM vs P2M distinction becomes important.
P2PM refers to the zero-MDR framework for eligible small merchants.
These are small vendors who receive UPI payments through a QR code directly into their own personal bank account, up to Rs 1 lakh per month. They pay zero MDR on every transaction.
This is worth repeating clearly, because it is the most misunderstood part of the rule. If you are in the P2PM category and a customer pays you Rs 8,000, you still pay nothing. The Rs 2,000 threshold does not apply to you at all. GST registration is not required to stay in this category either. Eligibility depends only on your monthly collections and your account type.
P2M refers to regular commercial merchant transactions
Eligible P2M UPI payments above ₹2,000 are subject to the applicable MDR. For the standard category, that means 0.4%, capped at ₹300 per transaction.
So, the amount of a single payment alone does not tell you whether you will pay MDR. Your merchant classification matters too.
Crossing ₹1 lakh in one month does not necessarily mean an immediate switch from P2PM to P2M.
Under the current NPCI framework, a P2PM merchant whose inward UPI collections remain above ₹1 lakh for three consecutive months can be transitioned to P2M.
Festival season is where this gets real. A shop that normally collects Rs 90,000 a month might do Rs 1.3 lakh through October, November, and December. Three strong months in a row is exactly the pattern that moves a merchant account across.
The right response is not to hold your business back. The amount involved is small. What matters is knowing the change is coming, so a lower bank credit in January does not look like a mistake.
What it actually costs, bill by bill
| Bill amount | MDR you pay | Credited to your account |
|---|---|---|
| Rs 800 | Rs 0 | Rs 800 |
| Rs 1,900 | Rs 0 | Rs 1,900 |
| Rs 2,500 | Rs 10 | Rs 2,490 |
| Rs 12,000 | Rs 48 | Rs 11,952 |
| Rs 45,000 | Rs 180 | Rs 44,820 |
A garment shop doing 30 bills a month above Rs 2,000, averaging Rs 6,000 each, pays about Rs 720 a month. A hardware shop doing Rs 4 lakh a month in large bills pays about Rs 1,600.
The small merchant exemption is tied to your classification and threshold, not simply to being a small shop.
Some sectors have been kept on a fixed fee because their bills are large or their margins are thin. For payments above Rs 2,000, these pay a flat Rs 5 per transaction, whatever the amount:
So a Rs 40,000 insurance premium costs the insurer Rs 5, not Rs 160. Below Rs 2,000, all of these remain free. These flat-rate categories together make up 17% of volume, 46% of value in UPI merchant transactions, so a large share of high-value UPI traffic is not paying 0.4% at all.
Capital markets are separate again. Mutual funds, SEBI-registered stockbrokers, securities dealers, and investment platforms pay 0.02%, capped at Rs 300. A Rs 10,000 mutual fund purchase costs the platform about Rs 2.
Education fees fall under the industry programme category with flat or capped rates rather than the full 0.4%. School and college fees up to Rs 2,000 stay completely free.What this MSME Development (Amendment) Bill Means for Small Businesses?
Suppose you bill a customer ₹5,000. Under the standard MDR structure, the MDR is ₹20 and 18% GST on that MDR is ₹3.60, making the total MDR-related charge ₹23.60 before any eligible input tax credit. The exact settlement treatment can depend on the payment provider and applicable tax treatment.
Merchants cannot simply add a UPI MDR line to the customer’s bill. The charge is borne within the merchant payment ecosystem. [Source: Ministry of Finance/PIB, 15 Sep 2026]
When the gross invoice value and bank settlement differ, businesses need a clear record of: Sales → UPI payment → MDR → GST on MDR → Bank credit
This is particularly important for businesses handling a large number of higher-value UPI payments.
Most of UPI is untouched by this change. Here is what carries no charge at all.
UPI remains free for every consumer, with no monthly quota and no volume limit on free transactions. The daily limits your bank applies, usually Rs 1 lakh to Rs 5 lakh, are security measures, not fee slabs.
Sending money to family, splitting a bill with friends, or moving money between your own linked accounts costs nothing, for the sender and the receiver.
Recurring payments set up through UPI Mandates, such as subscriptions, SIPs, or monthly bills, have no prescribed charge.
RuPay credit cards linked to UPI and pre-sanctioned credit lines follow standard credit card rules, not this 0.4%. If a customer pays you through credit on UPI, your cost will be the usual card rate, which is higher.
Payments of up to ₹2,000 remain free of MDR.
No.
Existing QR codes and soundboxes can continue to be used. Merchants do not need a new QR standee or re-registration simply because of the MDR update.
Your bank or payment provider should be the first point of contact for confirming how your merchant account is classified and how settlement deductions will appear.
Ask your bank or payment provider whether your UPI acceptance account is classified as P2PM or P2M. This can tell you whether the zero-MDR small-merchant framework or the applicable P2M MDR structure applies to your account.
If your business is close to the ₹1 lakh P2PM threshold, keep track of monthly inward UPI credits. The three-month classification rule makes this particularly relevant for growing shops. [Source: NPCI FAQ, 15 Sep 2026]
Record MDR separately from the sale amount so your books match your bank statement.
Where applicable, record GST on MDR separately and keep the required documents for accounting and ITC purposes. [Source: Business Standard]
The MDR is a merchant-side payment cost and should not be passed to the customer as a separate UPI surcharge.
NPCI says the money collected from UPI charges will stay within the UPI system. It will fund infrastructure, cybersecurity, fraud detection, and customer support. Running UPI is estimated to cost around ₹20,000 crore a year, which has largely been covered by government subsidies so far. NPCI has said this subsidy is meant to be a short-term solution, not a permanent one.
The huge scale of UPI also explains these costs. In August 2026 alone, UPI processed 2,451 crore transactions worth ₹29.9 lakh crore. According to PIB’s UPI review, annual UPI transactions grew from 2 crore in FY 2016–17 to over 24,162 crore in FY 2025–26, with 703 banks now part of the network.
A separate fund will also be created from these charges to improve digital payment infrastructure in Tier 3 to Tier 6 cities, the Northeast, Jammu & Kashmir, and Ladakh. It will also support schemes such as PM SVANidhi and PM Vishwakarma. The detailed rules will be finalised with the RBI over the next three months. Any further updates will be shared through NPCI’s UPI circulars.
Checkout – How UPI Integration Helps Small Business Payments
For businesses that receive many UPI payments, the main challenge is keeping track of the difference between the amount billed and the amount settled.
Vyapar’s GST billing software in India brings billing, accounting, payment records, inventory, and GST-related business records together in one place. This can help businesses keep organised records and reconcile sales with actual payment collections.
The software does not remove UPI MDR. What it can do is help businesses maintain better records of invoices and payment entries, making it easier to identify deductions and keep accounts accurate.
“UPI has changed the way millions of Indian businesses accept payments. For small businesses, its biggest strength has always been simplicity, a customer scans a QR code, the payment is completed, and the business gets paid instantly.
The introduction of MDR changes part of that equation, but it does not change the larger role UPI plays in digital payments. For most small merchants, especially those covered under the P2PM framework, the impact will remain limited. For businesses that do pay MDR, the bigger shift will be in how they track and reconcile their payments.
As businesses grow, even a small deduction on each transaction can become difficult to manage if it is not recorded properly. This is why billing, payments and accounting need to work together. The goal should not simply be to accept digital payments, but to have a clear view of what was billed, what was received and what was deducted.
At Vyapar, we believe digital tools should make payments and business management simpler for small businesses. No matter how the payment ecosystem changes, business owners should have clear visibility into their numbers so they can track payments, understand cash flow, and make informed decisions
No, nothing changes here. Person-to-person transfers stay free for both the sender and the receiver, and that includes moving money between your own bank accounts.
So paying rent, splitting a dinner bill, or sending money home works exactly the way it does today.
Most likely not. If your account sits in the P2PM category, which covers merchants receiving up to Rs 1 lakh a month through a UPI QR, your MDR is zero.
In this category even a single Rs 10,000 payment carries no charge. The size of the payment does not matter, only your monthly collection band does.
It depends entirely on how your account is classified. If you are in the P2M category, the charge is 0.4%, which works out to Rs 20 on a Rs 5,000 payment.
If you are in P2PM, the charge is zero. Same payment, two very different outcomes, which is why checking your category is worth five minutes.
The new framework is scheduled to take effect from 15 October 2026.
If you have seen forwards claiming a 1 April start, ignore them. That date is wrong and has been circulating on WhatsApp for months.
No. UPI stays free for consumers on person-to-person payments, and customers are not charged MDR when they pay a merchant either.
MDR is a merchant-side charge. Your buyer’s app will show the same amount they always saw.
Yes. Merchant UPI payments up to Rs 2,000 stay free of MDR under the new framework.
This is a bigger relief than it sounds, because these small-ticket payments make up over 95% of all UPI merchant transactions.
For eligible P2M transactions above Rs 2,000, the standard MDR is 0.4%, capped at Rs 300 per transaction.
The cap kicks in around the Rs 75,000 mark, so a Rs 2 lakh payment and a Rs 75,000 payment attract the same Rs 300 ceiling.
No. Eligible P2PM small merchants covered by the zero-MDR framework can keep receiving UPI payments without MDR, subject to the applicable conditions.
The 0.4% rate applies to P2M accounts. It is a category rule, not a blanket rule.
One good month will not move you. Under the current framework, a P2PM merchant whose inward UPI collections stay above Rs 1 lakh for three consecutive months can be moved to P2M.
Once that happens, the 0.4% rate starts applying to your payments above Rs 2,000, so it is worth tracking your monthly inflow.
Current reporting indicates that 18% GST applies to the MDR charged to merchants.
If you are GST registered, you may be able to claim input tax credit on it, subject to the applicable GST rules and conditions. Do confirm the treatment with your CA before you account for it.
No. NPCI has barred merchants from passing MDR on to buyers as a separate line or surcharge.
If the cost matters to your margins, build it into your pricing rather than showing it on the invoice.
No. Your existing QR code keeps working under the new framework.
No new standee, no re-registration, no bank visit. If anyone asks you to pay for a fresh QR because of these rules, treat it as a scam.
No prescribed MDR applies to UPI Mandates or AutoPay under the new framework.
Recurring collections such as subscriptions and EMIs continue as before.
Ask your bank or payment service provider directly. Your merchant classification is what decides which UPI MDR framework applies to your account.
It takes one call or one app support ticket, and it tells you exactly what you will pay from 15 October.
Written by
Sumit Agarwal is the Founder and CEO of Vyapar, where he leads the company’s mission to simplify business management for MSMEs through accessible technology. With extensive experience in building and scaling technology products, he brings practical insights into entrepreneurship, business management, accounting technology, MSME digitalisation, and SaaS. Designation: Founder & CEO, Vyapar
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