7StartUp Team
Short answer: NPCI has announced a 0.4% merchant discount rate (MDR) on UPI payments to merchants above ₹2,000, capped at ₹300 per transaction for payments of ₹75,000 and above. Customers do not pay anything extra. Small merchants receiving up to ₹1 lakh a month through UPI QR stay exempt, and every payment of ₹2,000 or less stays free. The charge was due to start on 15 October 2026, but NPCI deferred it until after Diwali, on a date still to be notified.
Last updated: 5 November 2026.
What is MDR on UPI?
MDR (merchant discount rate) is the small fee a shop or business pays its bank or payment provider when it accepts a digital payment. Card payments have always had MDR. Since 2020, UPI payments to merchants had zero MDR, which is a big reason UPI grew so fast.
Under the new framework announced by NPCI on 15 September 2026, some UPI payments to merchants (person-to-merchant or P2M payments) will carry a fee again. The money is shared among banks and payment companies to pay for UPI's infrastructure, security and support.
How much will merchants pay?
| Payment amount | MDR | Fee the merchant pays |
|---|---|---|
| Up to ₹2,000 | Nil | ₹0 |
| ₹3,000 | 0.4% | ₹12 |
| ₹10,000 | 0.4% | ₹40 |
| ₹50,000 | 0.4% | ₹200 |
| ₹75,000 and above | Capped | ₹300 maximum |
NPCI says payments of ₹2,000 or less make up more than 95% of UPI merchant transactions by volume. So most everyday payments, such as groceries, tea, auto fares and medicines, are not affected at all.
Who is exempt?
- Customers. You never pay MDR when you pay by UPI. It is charged to the merchant.
- Person-to-person (P2P) transfers. Sending money to family, friends or your own accounts stays free, whatever the amount.
- Small merchants. Merchants under the P2PM (small merchant) category who receive up to ₹1 lakh a month through UPI QR codes keep zero MDR. This applies whether or not they are GST registered.
- All payments of ₹2,000 or less, for every merchant.
- UPI apps cannot add a platform fee. NPCI's FAQ says apps are not allowed to charge users any platform fee on UPI payments.
Special rates for some categories
| Category | Charge above ₹2,000 |
|---|---|
| Railways, telecom, insurance, fuel and other notified categories | Flat ₹5 per transaction |
| Mutual funds, stockbrokers and investment platforms | 0.02%, capped at ₹300 |
| Schools, colleges, universities and exam bodies | Concessional rate (to be notified) |
| UPI on credit (RuPay credit cards, credit lines) | Outside this framework |
Can a shop add the charge to the customer's bill?
No. NPCI says merchants cannot pass the MDR on to customers. The customer pays the listed price. If a shop adds "UPI charges" to your bill, that goes against the rules.
When does it start?
- 15 September 2026: NPCI announced the framework and published FAQs.
- 28 September 2026: the Supreme Court refused to stay the decision while it hears a PIL against the charges, and asked the authorities for affidavits.
- 15 October 2026: the original start date. Before this, the UPI steering committee deferred go-live for the festive season.
- Now: the charge will start after Diwali, on a date NPCI will notify separately. On 5 November 2026 NPCI filed an affidavit in the Supreme Court defending the framework.
Check NPCI's website or your bank for the final start date before you change any prices.
What should your business do now?
- Check your monthly UPI QR collection. If it is under ₹1 lakh, you should stay in the zero-MDR small merchant category. Ask your bank how your account is classified.
- Look at your big bills. If many customers pay you ₹2,000 or more (electronics, furniture, jewellery, clinics, coaching fees, B2B orders), work out the extra cost: 0.4% of a ₹20,000 sale is ₹80.
- Do not add a "UPI fee" to bills. Build any extra cost into your prices instead, or offer a small discount for bank transfer on large B2B orders.
- Online stores: ask your payment gateway how its UPI pricing will change, and compare UPI, cards and net banking costs.
- Keep records. Download monthly settlement reports so your accountant can book the MDR as a business expense.
- Use invoices and payment links properly. Sending a GST invoice with a payment link keeps large payments organised and easy to reconcile.
Frequently asked questions
Will I pay a charge when I pay by UPI?
No. Consumers continue to use UPI free of cost. The MDR is paid by the merchant, not the customer.
Is UPI to friends and family charged?
No. Person-to-person transfers stay free, whatever the amount.
How much is the UPI MDR?
0.4% on merchant payments above ₹2,000, capped at ₹300 per transaction for payments of ₹75,000 and above. Some categories pay a flat ₹5 or 0.02% instead.
Are small shops exempt from UPI charges?
Yes. Small merchants receiving up to ₹1 lakh a month through UPI QR codes keep zero MDR, and every payment of ₹2,000 or less stays free.
When will the UPI MDR start?
It was due on 15 October 2026 but was deferred until after Diwali. NPCI will notify the exact date separately.
Can 7StartUp help us collect payments online?
Yes. We set up payment gateway integration, GST billing and POS software and online stores with payment links. Contact us for help.
