UPI MDR in India: what's confirmed, what may change, and what merchants should do before it starts

UPI MDR in India: what's confirmed, what may change, and what merchants should do before it starts

Last updated: 8 Oct 2026, 8:45 PM IST. We'll update this post on the day NPCI announces its decision on the start date.

Short answer: Under the framework the government published on 15 September 2026, merchants pay a 0.4% MDR on UPI payments above ₹2,000, capped at ₹300 for payments of ₹75,000 or more. Payments up to ₹2,000, person-to-person transfers and small P2PM merchants stay free. The 15 October start may move to 1 January 2027, but no decision had been announced by 8 October evening.

✅ Confirmed (as of 8 Oct 2026)	⏳ Not yet decided
0.4% MDR on person-to-merchant (P2M) UPI payments above ₹2,000 (Govt FAQ, 15 Sep 2026)	Whether the start date moves from 15 Oct 2026 to 1 Jan 2027 (Business Standard, 8 Oct). On 8 Oct the Finance Minister said the payments ecosystem will decide (Moneycontrol)
Capped at ₹300 per payment of ₹75,000 and above (PIB, 15 Sep 2026)	Whether the small-merchant exemption widens to businesses with up to ₹40 lakh annual turnover (from ₹1 lakh a month today) (Business Standard, 8 Oct)
Free: P2P transfers of any amount, merchant payments up to ₹2,000, and small P2PM merchants receiving up to ₹1 lakh a month through UPI QR (PIB)	How some categories (for example, manual loan repayments and broker top-ups) will be classified (Moneycontrol, 8 Oct)
Flat ₹5 for specified essential sectors; 0.02% (max ₹300) for capital-market payments (PIB)	How much of the MDR your payment gateway or aggregator passes on to you (Financial Express, 8 Oct)
Merchants must not pass MDR on to customers (PIB)
UPI AutoPay (recurring mandates) carries no prescribed MDR (Govt FAQ, Q22)
The Supreme Court refused to stay the framework on 28 Sep 2026 (Financial Express)

What is UPI MDR, and who actually pays it?

MDR (merchant discount rate) is the fee a business pays to the bank and payment companies that process a digital payment. On 15 September 2026, the Press Information Bureau announced that UPI would move away from zero MDR for a limited set of merchant payments, under the Payment and Settlement Systems Act, 2007.

Three points matter for you as a business owner:

• The merchant pays, not the customer. The PIB release says MDR "is not a charge on customers making UPI payments", and banks have been told to make sure merchants don't pass it on.
• It isn't a tax. PIB says MDR is "neither a tax nor a charge collected by the Government or NPCI". It's shared among banks, payment service providers and UPI apps.
• Most payments aren't affected. The government says MDR will apply to only about 4% of merchant transactions; the other 96% are either ₹2,000 or less or come from small merchants under the zero-MDR framework (PIB).

The rates and caps are set by the UPI and Services Steering Committee, which is headed by NPCI (Govt FAQ, Q7).

How much will a UPI payment cost my business?

For a regular business (P2M) account, the maths is simple: 0.4% of the payment if it's above ₹2,000, and never more than ₹300. The government's own FAQ works through ₹3,000 (₹12), ₹50,000 (₹200) and ₹1,00,000 (₹300) (Govt FAQ, Q35). Here's how it works out on common bill sizes:

Customer pays (UPI)	Rule that applies	MDR you pay
₹1,500	₹2,000 or less: free	₹0
₹2,000	₹2,000 or less: free	₹0
₹3,000	0.4%	₹12
₹10,000	0.4%	₹40
₹50,000	0.4%	₹200
₹75,000	Cap applies	₹300
₹1,00,000	Cap applies (0.4% would be ₹400)	₹300
₹10,000 to a small P2PM merchant	Zero-MDR category	₹0
₹4,000 insurance premium	Flat-fee sector	₹5

Figures are the framework rates as of 8 Oct 2026. Your bank or gateway's actual deduction may differ, so check with your provider.

So a Coimbatore electronics shop that takes 200 UPI payments of ₹10,000 a month would pay about ₹8,000 a month in MDR (200 × ₹40), while a Chennai tea stall where every bill is under ₹2,000 would pay nothing. Selling online this festive season? See our Diwali 2026 online sales playbook.

Which UPI payments stay free?

According to the PIB release and the government FAQ (both 15 Sep 2026):

• Person-to-person transfers, of any amount, including self-transfers.
• Merchant payments of ₹2,000 or less.
• Small merchants in the P2PM category. These are vendors who receive up to ₹1 lakh a month through a UPI QR code straight into their own account. They pay zero MDR even on a single payment above ₹2,000. GST registration isn't needed to qualify.
• What moves you out of P2PM: if your inward UPI credits go above ₹1 lakh a month for three months in a row, your bank moves you to the regular P2M category (Govt FAQ, Q29).
• UPI AutoPay payments. Recurring mandates (bills, subscriptions, SIPs) "do not carry prescribed MDR transaction charges" (Govt FAQ, Q22).
• Your existing QR code keeps working. You don't need a new QR or soundbox (Govt FAQ, Q25).

Which businesses pay a flat ₹5 or a lower rate?

The PIB release lists two special cases:

• Flat ₹5 per payment above ₹2,000 in "essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs". The government FAQ also puts utility bill payments (electricity, water, piped gas) in the ₹5 group (Q41).
• 0.02%, capped at ₹300, for payments to mutual funds, securities, stockbrokers and dealers.

For schools and colleges, the FAQ says fee payments above ₹2,000 get "flat-fee structures or capped processing rates" but doesn't publish the exact figure (Q42). Business Standard reported on 8 Oct that education would get the ₹5 flat fee (source). If you run an institution, confirm your category with your acquiring bank.

Will UPI MDR start on 15 October or 1 January 2027?

Officially, the framework still takes effect on 15 October 2026 (Govt FAQ, Q5). But a delay is now on the table:

• On 8 Oct 2026, Business Standard reported that a proposal to defer MDR to 1 January 2027 is "under consideration", with a final decision expected in the next few days (source).
• The same day, Moneycontrol reported that merchant bodies, fintechs and payment companies had asked NPCI for the delay, and that NPCI was likely to decide within about two days (source).
• Financial Express reported that no final decision had been taken and that the framework itself wouldn't change (source).
• Mint, citing Reuters on 8 Oct, said NPCI had not yet taken a final decision (source).
• At 6:02 PM IST on 8 Oct 2026, Finance Minister Nirmala Sitharaman said any deferment "will be handled by the stakeholders", leaving the timing to the payments ecosystem (Moneycontrol).

As of 8:45 PM IST on 8 October, no new date had been announced. Until NPCI announces one, plan for 15 October. If the delay happens, you'll simply have more time to prepare.

Could the small-merchant exemption get bigger?

Possibly. Business Standard reported on 8 Oct 2026 that the steering committee is considering exempting businesses with annual turnover up to ₹40 lakh, compared with today's test of up to ₹1 lakh a month through UPI QR (source). This hasn't been announced. If it goes ahead, many more small shops and service businesses in Tamil Nadu would stay at zero MDR.

Can I add the MDR to my customer's bill?

No. The government FAQ says merchants "cannot pass on MDR charges to customers while accepting payments through UPI" (Q34), and PIB says banks have been told to enforce this. Treat MDR as a cost of doing business and build it into your margins, not your checkout.

What have the RBI and the Supreme Court said?

• Supreme Court, 28 Sep 2026: refused to stay the Centre's decision to impose MDR on specified P2M payments, and issued notices to the Centre, RBI and NPCI on a plea challenging it (Financial Express).
• RBI Governor Sanjay Malhotra, 7 Oct 2026: "As of now, we do not see any drop in volumes. And I don't personally think that a small fee will have a major impact on the volumes" (The Hindu).

What should merchants do before UPI MDR starts?

1. Check your category. Ask your bank or payment provider whether your UPI account is P2PM or P2M. A sole trader with a personal-account QR may already be exempt.
2. Count your payments above ₹2,000. Pull the last three months of UPI receipts. Multiply the payments above ₹2,000 by 0.4% (capped at ₹300 each) to see your likely monthly cost.
3. Ask your gateway how it will bill you. Financial Express reports that payment aggregators are still negotiating their share of MDR with sponsor banks (source), so get the deduction and invoice format in writing. Our guide to choosing a payment gateway for a small business covers the other fees to compare.
4. Don't add a surcharge. Passing MDR to customers isn't allowed.
5. Make sure you can reconcile it. When the fee starts, settlements will arrive net of MDR. You'll want each payment, its MDR and its settlement to match up, or month-end books get messy.
6. Watch for the decision. Bookmark this page. We'll update it the day NPCI confirms the date.

How Vilva can help with payment collection

We build payment collection systems that bring UPI, cards, net banking, wallets, QR codes and payment links into one dashboard, with auto-reconciliation and reports. If you're a fintech or lender, our fintech team builds disbursal and collection systems and customer and admin portals. And if your team chases dues manually, GrowSuite CRM keeps follow-ups and reminders in one place.

Lenders and fintechs: if MDR changes your collection costs, book a 20-minute call about your collection and reconciliation flows.

We don't set MDR, and no provider can promise you zero MDR on payments the framework covers. What we can do is help you see exactly what you're paying and keep your books clean.

FAQ

Will my customers pay a fee for UPI payments from October 2026?

No. MDR is paid by the merchant, and the government says UPI stays free for consumers. Merchants are not allowed to pass MDR on to customers.

Is UPI MDR charged on a payment of exactly ₹2,000?

No. MDR applies only to merchant payments above ₹2,000. A ₹2,000 payment carries no MDR. A ₹3,000 payment carries ₹12 at the 0.4% rate.

What is the difference between P2M and P2PM?

P2M (person-to-merchant) is a regular business account, where the 0.4% MDR applies to payments above ₹2,000. P2PM (person-to-person-merchant) is NPCI's category for small vendors who receive up to ₹1 lakh a month through a UPI QR code into their own bank account. P2PM merchants pay zero MDR, even on single payments above ₹2,000. If your UPI credits go above ₹1 lakh a month for three months in a row, your bank moves you to P2M.

Do I need GST registration to stay at zero MDR?

No. The government FAQ says GST registration is not required to qualify for zero MDR under P2PM. Eligibility depends on your monthly UPI collections (up to ₹1 lakh) and how your bank account is categorised.

Do I need a new QR code or soundbox?

No. The government FAQ says existing QR codes and soundboxes keep working. You don't need to replace, re-register or change them.

Does UPI MDR apply to RuPay credit card payments on UPI?

No, not this MDR. The government FAQ says credit-linked UPI payments, such as RuPay credit cards linked to UPI or pre-sanctioned credit lines, follow separate credit product rules. The 0.4% MDR applies to payments made directly from a customer's bank account to a merchant's account.

Is MDR charged on UPI AutoPay or recurring payments?

No. The government FAQ says UPI AutoPay mandates, such as recurring utility bills, OTT subscriptions and investments, do not carry prescribed MDR charges. If you are a lender, confirm with your sponsor bank how manual repayments made outside AutoPay will be categorised.

Does UPI MDR affect my payment gateway costs?

It can, if you take UPI payments above ₹2,000 through a gateway. As of 8 Oct 2026, payment aggregators were still negotiating their share of MDR with banks, so ask your provider in writing how UPI MDR will show up on your settlements and invoices.

When exactly does UPI MDR start?

The official start date is 15 October 2026. On 8 October, a delay to 1 January 2027 was under consideration, and the Finance Minister said the payments ecosystem would decide. No new date had been announced by 8:45 PM IST that day. We will update this page when NPCI announces a decision.

Is UPI MDR a government tax?

No. The government says MDR is neither a tax nor a charge collected by the government or NPCI. It is shared among banks, payment service providers and UPI apps to fund the UPI system.

Want to see what UPI MDR will cost you, and whether your settlements will reconcile? Send "UPI MDR check" to Vilva Business (Vilva Networks), Chennai on WhatsApp +91 91765 69459. Share how many UPI payments above ₹2,000 you take each month (counts only, no customer data), and we'll show your likely monthly MDR and how to match each payment, fee and settlement. Or see our payment collection services.

Talk to us about payment collection and reconciliation: vilvabusiness.com/fintech.

This article explains a payments framework in plain language. It isn't legal or tax advice. Rates and dates are as reported by the sources linked above on 8 Oct 2026.