UPI MDR charges in 2026, explained
From late 2026, businesses pay a small fee on larger UPI payments. Here is what was announced, when it starts, who pays nothing, and what it costs you.
What MDR is
The merchant discount rate (MDR) is the fee a business pays its bank or payment gateway to accept a digital payment. It is taken out of the payment before the money is settled into your account. Card payments carry an MDR, except RuPay debit cards. RuPay debit cards and UPI merchant payments have carried none since January 2020, though a payment gateway may still charge its own fee for its service.
What was announced
On 15 Sept 2026 the Finance Ministry’s Department of Financial Services published the rule for person-to-merchant (P2M) UPI payments:
- No MDR on payments of ₹2,000 or less. These are over 95% of UPI merchant payments by count.
- 0.4% on payments above ₹2,000.
- A cap of ₹300 per payment, reached at ₹75,000.
- No charge to customers, and UPI apps may not add a platform fee.
- Merchants may not pass the MDR on to customers.
When it starts
The MDR was due from 15 Oct 2026. On 13 Oct 2026, two days before, NPCI’s UPI and Services Steering Committee deferred it to after Diwali 2026, on a date NPCI has not yet notified, citing the festive season. No change to the rate or the cap has been announced. Until the new date, UPI merchant payments carry no MDR.
Who pays nothing or less
- Person-to-person (P2P) payments, including transfers to yourself, are free at any amount.
- Small merchants on the P2PM plan, who receive up to ₹1 lakh a month by UPI QR into their own account, pay no MDR. A merchant above ₹1 lakh for three months in a row moves to the P2M rate.
- Railways, telecom, insurance, fuel and utility bills pay a flat ₹5 per payment above ₹2,000. School and college fees also get a lower rate.
- Capital market payments, such as mutual funds and stockbrokers, pay 0.02%, capped at ₹300.
- AutoPay mandates pay no MDR.
- RuPay credit cards and credit lines linked to UPI follow card rules instead.
What it costs: worked examples
A ₹12,400 payment pays ₹49.60 of MDR. A ₹1,00,000 payment would pay ₹400 at 0.4%, but the cap makes it ₹300. Banks and gateways add GST at 18% on the fee, so the ₹12,400 payment costs ₹58.53 in all.
Try your own amounts in the UPI MDR calculator.
GST on the MDR
The fee is a service, so your bank or gateway charges GST at 18% on it and shows it on its monthly tax invoice. If you are registered for GST, that GST can usually be claimed as input tax credit when it matches the invoice. Your CA decides what you claim.
What to do before it starts
- Find out which of your payments are above ₹2,000 and roughly what 0.4% of them adds up to.
- Check whether your account is P2M or P2PM, and whether your business falls in a flat ₹5 category.
- Keep your monthly settlement reports and the gateway’s GST invoices together.
- Once it starts, check each settlement against the rule; see how to check the MDR deducted from your settlements.
Questions
- Do customers pay UPI MDR?
- No. The business that receives the payment pays it. Customers pay nothing extra, and UPI apps may not add a fee.
- What is the UPI MDR rate in 2026?
- 0.4% on merchant payments above ₹2,000, capped at ₹300 per payment, plus GST on the fee.
- From when is UPI MDR applicable?
- It was due from 15 Oct 2026, but NPCI deferred it on 13 Oct 2026 to after Diwali 2026, on a date NPCI has not yet notified.
- Is there MDR on money sent to friends and family?
- No. Person-to-person UPI payments stay free at any amount.
- Do small shops pay UPI MDR?
- Not on the P2PM plan, for merchants who receive up to ₹1 lakh a month by UPI QR into their own account. Others pay nothing on payments of ₹2,000 or less.