UPI MDR Charges 2026: 0.4% MDR on Payments Above ₹2,000
Introduction
UPI MDR Charges 2026 introduce an important change for selected merchant payments made through the Unified Payments Interface. From 15 October 2026, a Merchant Discount Rate (MDR) of 0.4% will apply to specified Person-to-Merchant (P2M) UPI transactions above ₹2,000. For transactions of ₹75,000 and above, the MDR is capped at ₹300 per transaction.
However, this does not mean that customers will have to pay a charge whenever they make a UPI payment above ₹2,000. Person-to-Person (P2P) transactions remain free irrespective of the amount, while P2M transactions up to ₹2,000 continue to remain free of MDR. Qualifying small merchants under the P2PM framework also continue to receive zero-MDR treatment.
For businesses, UPI MDR Charges 2026 make merchant classification, settlement reconciliation and payment-cost accounting more important.
Quick Insights
- UPI MDR Charges 2026 apply to specified P2M transactions above ₹2,000 from 15 October 2026.
- The standard MDR is 0.4%, capped at ₹300 for transactions of ₹75,000 and above.
- All P2P UPI transactions continue to remain free irrespective of amount.
- P2M transactions up to ₹2,000 remain free of MDR.
- Around 96% of merchant transactions are expected to remain unaffected.
What Are UPI MDR Charges 2026?
Merchant Discount Rate, commonly known as MDR, is a charge associated with accepting and processing merchant payments. It operates within the payment ecosystem and may be shared among participants such as banks, payment service providers and UPI application providers.
Under UPI MDR Charges 2026, a standard MDR of 0.4% applies to specified P2M UPI transactions above ₹2,000.
The Ministry of Finance has clarified that MDR is neither a tax nor a charge collected by the Government or NPCI. It is a merchant-payment ecosystem charge distributed among participating entities to support payment infrastructure and the continued operation of UPI.
Therefore, UPI Charges Above ₹2,000 should not be interpreted to mean that every UPI user making a payment above ₹2,000 must pay an additional 0.4%.
What Has Changed Under UPI MDR Charges 2026?
The revised framework gives different MDR treatment depending on the type of transaction and the merchant category.
|
Type of UPI Transaction |
MDR Treatment |
|
Person-to-Person (P2P) transfer |
No MDR |
| P2M payment up to ₹2,000 |
Zero MDR |
|
Specified P2M payment above ₹2,000 |
0.4% MDR |
| P2M transaction of ₹75,000 or above |
MDR capped at ₹300 |
|
Qualifying P2PM small-merchant transaction |
Zero MDR |
| Specified essential-sector transactions above ₹2,000 |
Flat ₹5 MDR |
|
Specified capital-market transactions |
0.02% MDR, capped at ₹300 |
The Ministry of Finance states that MDR is expected to apply to only about 4% of merchant transactions, leaving approximately 96% unaffected.
Accordingly, UPI MDR Charges 2026 are not a blanket charge on every UPI transaction or every merchant. UPI payment rules have changed at different stages over the years, and businesses can also refer to the earlier developments around UPI transaction rules and charges to understand how the payment framework has evolved.
Who Will Pay the 0.4% UPI MDR?
The MDR is a merchant-side payment acceptance charge, not a transaction fee payable by the customer.
The Government has clarified that customers will not be required to pay MDR when making UPI payments. Banks have also been advised to ensure that merchants do not pass MDR charges on to customers, while UPI application providers are prohibited from levying platform fees or hidden charges on users.
For example, where an eligible P2M transaction is ₹10,000: 0.4% of ₹10,000 = ₹40 MDR
For an eligible transaction of ₹1,00,000, 0.4% would ordinarily equal ₹400. However, because UPI MDR Charges 2026 cap the charge at ₹300 for transactions of ₹75,000 and above, the applicable MDR would be limited to ₹300.
Businesses should therefore distinguish UPI Merchant Charges 2026 from charges directly imposed on customers.
Which UPI Transactions Will Remain Free?
A significant portion of UPI transactions remains outside the MDR framework.
Person-to-Person UPI Transactions
All P2P UPI transactions continue to remain free, irrespective of the amount transferred. The new MDR framework applies to specified merchant transactions and does not introduce a charge on individuals merely for sending or receiving money through UPI.
UPI Transactions Up to ₹2,000
UPI transactions up to ₹2,000 have statutory no-charge protection under the notified framework, while the Ministry of Finance has separately confirmed that P2M merchant payments up to ₹2,000 will continue to remain free of MDR under the new merchant-payment framework.
This distinction is important because the statutory protection and the operational MDR framework are related but should not be described as the same legal instrument.
Qualifying Small Merchants
Small merchants, including street vendors receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category, continue to receive zero-MDR treatment on qualifying transactions.
Therefore, UPI Transaction Charges 2026 should not be described as charges applicable to every merchant accepting UPI. UPI is also being explored for uses beyond regular merchant payments, including proposed initiatives such as EPF withdrawal through UPI, although such facilities remain subject to the applicable EPFO framework and official implementation.
Special MDR Rates for Certain Merchant Categories
UPI MDR Charges 2026 also provide special treatment for certain merchant categories instead of applying the standard 0.4% rate to every eligible transaction.
For transactions above ₹2,000 in specified essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, the applicable MDR is a flat ₹5 per transaction.
Payments relating to specified capital-market activities, including mutual funds, securities, stockbrokers and dealers, attract an MDR of 0.02%, capped at ₹300 per transaction.
Businesses should therefore verify their merchant classification before calculating the impact of UPI MDR on Merchant Payments. Businesses and investors making capital-market payments should also be aware of SEBI’s initiatives around verified UPI handles for investment payments, which are aimed at reducing fraud involving unauthorised payment IDs.
Legal Status of UPI Charges Above ₹2,000
The legal and operational basis of UPI MDR Charges 2026 should be understood in two parts.
First, the Government notified a statutory framework under the Payment and Settlement Systems Act, 2007 protecting specified electronic payment transactions from charges. Under the notified position, UPI transactions up to ₹2,000 receive no-charge protection.
This means that the statutory notification should not be described as the instrument that itself imposes a 0.4% MDR on transactions above ₹2,000.
Second, the revised merchant MDR structure operates under the separate NPCI framework for specified P2M transactions. NPCI announced the revised framework for selected merchant transactions, with implementation from 15 October 2026.
The Ministry of Finance has separately confirmed the 0.4% rate, ₹300 cap and zero-MDR treatment for protected transaction categories.
Keeping these two developments separate is important when explaining UPI MDR Charges 2026 from a legal and compliance perspective.
What Do UPI MDR Charges 2026 Mean for Businesses?
Businesses that regularly receive higher-value UPI payments should determine whether their transactions fall within a P2M category to which MDR applies.
The new structure may also affect settlement reconciliation and accounting. Where MDR is deducted before merchant settlement, businesses may need to reconcile:
- The gross amount paid by the customer;
- MDR or payment-processing deductions;
- Other applicable settlement adjustments; and
- The net amount credited to the merchant account.
Merchants should also verify whether they qualify under the P2PM small-merchant framework or fall within a category carrying a special MDR rate.
Most importantly, UPI MDR Charges 2026 should not be recorded or communicated as a Government tax. The Ministry of Finance expressly states that MDR is not a tax or charge collected by the Government or NPCI.
Businesses should separately review the applicable tax and accounting treatment of payment-processing services based on invoices, settlement reports and applicable tax law.
What Should Merchants Check Before 15 October 2026?
Businesses preparing for UPI Merchant Charges 2026 should review:
- Whether transactions are classified as P2M or P2PM;
- The merchant category under which their UPI account is registered;
- Communication from acquiring banks or payment service providers;
- The MDR applicable to their merchant category;
- Settlement statements showing MDR deductions;
- Whether the ₹300 cap is applied correctly where relevant; and
- Accounting records for payment-processing expenses.
Merchants should also avoid describing the new framework to customers as a general UPI tax.
Correct classification is particularly important under UPI MDR Charges 2026 because the standard 0.4% rate, special sector rates and zero-MDR categories apply differently.
UPI MDR vs UPI Transaction Charge: What Is the Difference?
MDR and a customer-facing UPI transaction charge are not the same.
MDR is a merchant-payment ecosystem charge associated with acceptance and processing of eligible merchant transactions.
A customer transaction charge would be an amount directly levied on the individual making or receiving the payment.
Under UPI MDR Charges 2026, customers continue to use UPI without paying MDR. P2P payments remain free, while the revised MDR framework applies only to specified merchant-side transactions.
Therefore, saying that “all UPI payments above ₹2,000 will attract a 0.4% customer charge” would be factually incorrect.
How Ebizfiling Can Help Businesses?
Changes in digital payment costs can affect bookkeeping, payment reconciliation and financial records, particularly for businesses processing a large number of merchant transactions.
Ebizfiling can assist businesses with accounting and bookkeeping, GST registration and related compliance requirements so that merchant receipts, MDR deductions and other payment-processing expenses are properly recorded and supported by relevant documentation. Businesses accepting digital payments should also ensure that their GST registration in India and related compliance requirements are reviewed separately based on their business activities and turnover. For assistance with accounting, GST or other business compliance requirements, you can contact the Ebizfiling team through its official support channels.
Need help understanding how UPI MDR Charges 2026 may affect your business records or compliance? Connect with Ebizfiling for accounting and compliance support.
Conclusion
UPI MDR Charges 2026 introduce a standard 0.4% MDR on specified P2M UPI transactions above ₹2,000 from 15 October 2026, subject to a maximum MDR of ₹300 for transactions of ₹75,000 and above.
However, the framework does not make UPI chargeable for ordinary users. P2P transactions continue to remain free, P2M merchant payments up to ₹2,000 remain free of MDR, and qualifying small merchants continue to receive zero-MDR treatment. Certain merchant categories also have separate concessional MDR rates.
For businesses, the key requirement is to identify the correct merchant and transaction category, verify settlement deductions and maintain accurate accounting records. UPI MDR Charges 2026 are merchant-payment ecosystem charges and should not be confused with a general UPI tax or customer transaction fee.
Frequently Asked Questions
1. Is the ₹2,000 MDR threshold calculated per UPI transaction or on a merchant’s total monthly collections?
For regular P2M transactions, the ₹2,000 threshold applies to the individual transaction value, not to the merchant’s aggregate monthly UPI receipts. A separate rule applies to qualifying small merchants under the P2PM category, where merchants receiving up to ₹1 lakh per month through qualifying UPI QR transactions continue to receive zero-MDR treatment. These two thresholds should not be confused.
2. How should a merchant determine whether a transaction qualifies for P2PM zero-MDR treatment?
Zero-MDR treatment under P2PM depends on the merchant being classified within the applicable small-merchant P2PM framework, not merely on the value of one transaction. The Government has stated that small merchants, including street vendors receiving up to ₹1 lakh per month through UPI QR codes under P2PM, continue to receive zero MDR. Merchants should verify their classification with their acquiring bank or payment provider rather than assuming eligibility solely from turnover or transaction size.
3. How does a Merchant Category Code affect the MDR applicable to a UPI transaction?
A Merchant Category Code (MCC) identifies the type of goods or services supplied by a merchant. NPCI states that the MCC is provided by the bank during merchant onboarding. Because the new MDR framework gives different treatment to certain sectors, an incorrect MCC may lead to an incorrect MDR being applied. Merchants should therefore verify their MCC with the acquiring bank where the deducted rate does not match their business category.
4. Is the ₹300 cap applied to a merchant’s daily MDR or separately to each high-value transaction?
The ₹300 ceiling is a per-transaction cap. For an applicable regular P2M transaction of ₹75,000 or more, MDR is capped at ₹300 for that transaction. For example, 0.4% of ₹1,00,000 is ₹400, but the MDR would be limited to ₹300. The cap is not a daily or monthly ceiling on all MDR paid by the merchant.
5. Will a merchant in a special sector always pay the standard 0.4% MDR above ₹2,000?
No. Specified essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, have separate treatment. Eligible transactions above ₹2,000 in these categories attract a flat ₹5 MDR per transaction rather than the standard 0.4%. Correct merchant and transaction classification is therefore essential before determining the applicable charge.
6. How is MDR calculated for UPI payments relating to mutual funds, securities or stockbrokers?
Specified capital-market transactions involving mutual funds, securities, stockbrokers and dealers attract MDR at 0.02%, subject to a maximum of ₹300 per transaction. They should therefore not automatically be subjected to the standard 0.4% P2M rate merely because the transaction exceeds ₹2,000.
7. Can a merchant recover MDR by showing it as a separate UPI fee or convenience charge to the customer?
The Government has stated that MDR is a merchant-payment ecosystem charge and that customers will not pay MDR. Banks have been advised to ensure merchants do not pass MDR on to customers, while UPI application providers cannot levy platform fees or hidden charges on users. A merchant should therefore not simply rename the MDR as a mandatory UPI fee payable by the customer.
8. What should a merchant check if an incorrect MDR appears in a UPI settlement?
The merchant should verify the transaction type, transaction value, MCC, P2M or P2PM classification, applicable special-sector rate and MDR cap against the settlement report. Since NPCI states that the MCC is assigned by the bank during merchant onboarding, an apparent classification error should be raised with the acquiring bank or relevant payment service provider with the supporting transaction and settlement details.
9. Can Ebizfiling help businesses reconcile gross UPI receipts with MDR and net settlements?
Yes. Ebizfiling can assist businesses with bookkeeping and accounting so that gross merchant receipts, payment-processing deductions and net bank settlements are properly reconciled and supported by transaction records. Businesses should retain settlement reports, bank statements, payment-provider invoices and other supporting records required for their accounting and tax compliance.
10. Can Ebizfiling change an incorrect MCC or P2PM/P2M classification for a merchant?
No. Ebizfiling cannot itself change the MCC or UPI merchant classification, because the MCC is assigned within the acquiring-bank/payment-provider ecosystem. Ebizfiling can, however, assist a business in reviewing the accounting impact of an incorrect MDR deduction, maintaining supporting records and reconciling corrected settlements after the issue is taken up with the acquiring bank or payment provider.
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