UPI MDR Charges Explained: 0.4%, Exemptions, and Who Pays

Last updated: 20 September 2026

⚠️ Disclaimer: This page is for informational purposes only and does not constitute financial or legal advice. MDR rates are subject to change. Always verify with your acquiring bank or payment service provider.

UPI MDR charges are fees paid by merchants — not customers — to banks and payment networks for processing UPI (Unified Payments Interface) Person-to-Merchant transactions. Starting 15 October 2026, a new framework introduced by NPCI replaces the zero-MDR policy that was in place since 1 January 2020.

Direct Answer: The UPI MDR rate is 0.4% on P2M transactions above ₹2,000, capped at ₹300, effective 15 October 2026. Small merchants (≤ ₹1 lakh/month via QR) are exempt. Customers pay nothing extra.

What Are UPI MDR Charges?

MDR stands for Merchant Discount Rate. When a customer pays a merchant via UPI, the merchant's bank deducts a small percentage from the transaction amount before settling it to the merchant's account. This deducted amount is the MDR — it compensates banks, NPCI, and UPI app providers for maintaining the payment infrastructure.

For example: A customer pays ₹5,000 at your shop via Google Pay or PhonePe. After October 15, your bank deducts:

  • MDR: ₹20 (0.4% of ₹5,000)
  • GST on MDR: ₹3.60 (18% of ₹20)
  • You receive: ₹4,976.40

Complete UPI MDR Rate Structure (Effective 15 Oct 2026)

Transaction TypeAmountMDR
UPI P2M — General merchantsUp to ₹2,000Zero (₹0)
UPI P2M — General merchantsAbove ₹2,0000.4% (max ₹300)
UPI P2M — Fuel, Telecom, Insurance, Rail, AgriAbove ₹2,000₹5 flat
UPI P2M — Capital Markets (MF, Brokers)Above ₹2,0000.02% (max ₹300)
UPI P2P (Person-to-Person)Any amountAlways zero
Small Merchants (P2PM ≤ ₹1 lakh/month via QR)Any amountExempt
UPI AutoPay / Recurring MandatesAny amountExempt
RuPay Debit Card (UPI or POS)Any amountZero (maintained)

Source: PIB Press Release, Government of India, September 2026 | Last verified: September 2026

Who Pays UPI MDR — Merchant or Customer?

The merchant pays MDR. It is automatically deducted by the acquiring bank from the settlement amount. The government has explicitly prohibited merchants from passing on MDR charges to customers. The Reserve Bank of India and NPCI have both reiterated that UPI app providers cannot add platform fees or hidden charges for individual users.

Why Was UPI Free Before? What Changed?

The Government of India mandated zero MDR on UPI and RuPay debit cards from 1 January 2020 via the PSS Act (Section 10A) and Income-tax Act (Section 269SU), to promote digital payments adoption. Banks and payment networks subsidised the cost from 2020–2026.

The October 2026 change was introduced to make the digital payment ecosystem financially sustainable. The revenue from MDR is used to fund server infrastructure, cybersecurity systems, fraud prevention, and innovation in the payments ecosystem.

What Is the MDR Cap?

At 0.4%, the MDR on a ₹75,000 transaction works out to exactly ₹300. For any transaction above ₹75,000, the MDR is capped at ₹300. This means large transactions (e.g. ₹2,00,000) still attract only ₹300 MDR maximum.

Small Merchant Exemption: Who Qualifies?

Small merchants classified under P2PM (Person-to-Person-Merchant) who receive up to ₹1 lakh per month through UPI QR codes are fully exempt from MDR. This is designed to protect street vendors, kirana stores, and small businesses. If your monthly UPI collections via QR code exceed ₹1 lakh, you may fall under the standard P2M category and become liable.

Check with your acquiring bank or UPI app provider to understand your merchant category classification.

GST on UPI MDR

An additional 18% GST is charged on the MDR amount. For example:

  • Transaction: ₹5,000
  • MDR (0.4%): ₹20
  • GST on MDR (18%): ₹3.60
  • Total deduction: ₹23.60
  • Net settlement: ₹4,976.40

GST-registered merchants can claim Input Tax Credit (ITC) on the GST paid on MDR, which partially offsets the cost.→ Full GST on MDR explanation with calculator

Impact on Businesses

The actual impact depends heavily on your transaction profile. Businesses with:

  • Mostly small tickets (< ₹2,000): Zero impact — all below threshold
  • Mixed ticket sizes: Only amounts above ₹2,000 per transaction attract MDR
  • Large-volume, high-value transactions (e.g. travel, electronics): Most significant impact, but capped at ₹300/txn
  • Fuel stations, telecom, railways: Flat ₹5 per transaction — very low impact

Use our MDR Calculator → to calculate your exact monthly cost.

Current MDR Rates at a Glance

Updated Sep 2026
Merchant Discount Rate (MDR) for different payment modes in India, effective October 15, 2026
Payment ModeMDR RateThresholdCapGST on MDRSource
UPI (Person-to-Merchant)0.4% or ₹5 (special categories)₹2,000₹300NoMinistry of Finance release of 15 September 2026 (PIB)
RuPay Debit CardZero——NoPIB
RuPay Credit Card (via UPI)⚠️ Est.Varies——18%Unverified (commercial agreement with acquiring bank)
Debit Card (Visa / Mastercard — up to 0.90%)0.90%—₹1,00018%RBI 6 Dec 2017 & PIB 19 Mar 2025
Credit Card (Indicative)⚠️ Est.2.00%——18%RBI (market-determined rate — varies by bank/network)
Net Banking⚠️ Est.Varies——18%RBI (no standardised cap — PSP-negotiated)
Prepaid Wallet (Paytm, PhonePe wallet, etc.)⚠️ Est.Varies——18%RBI (varies by PPI issuer agreement)

⚠️ Rows marked "Est." have no confirmed primary source. Rates effective from 15 October 2026. Always verify with your acquiring bank or payment gateway.Learn more about our sources →

UPI MDR Charges — FAQs

What is UPI MDR and how does it work?
UPI MDR (Merchant Discount Rate) is a processing charge paid by merchants to acquiring banks and payment networks for handling UPI Person-to-Merchant (P2M) payments. It works as an automated deduction: when a customer pays via UPI, the acquiring bank settles the funds to the merchant after deducting the applicable MDR percentage or flat fee. MDR is not a government tax; it sustains server infrastructure, switching technology, security protocols, and bank operations.
What is the 0.4% UPI MDR charge?
The 0.4% UPI MDR is the standard processing fee applicable on UPI merchant transactions exceeding ₹2,000, effective from 15 October 2026. Under this rule, merchants pay 0.40% of the transaction amount, subject to a maximum cap of ₹300 per transaction. Transactions of ₹2,000 or less remain at zero MDR.
Who pays UPI MDR — the merchant or the customer?
The merchant pays UPI MDR, not the customer. Customers pay exactly the invoice amount with zero extra charges. Banks have been advised that merchants must not pass MDR on to customers as a surcharge. UPI remains 100% free for retail consumers.
When does the 0.4% UPI MDR apply?
The 0.4% UPI MDR applies starting 15 October 2026 on UPI Person-to-Merchant (P2M) transactions that exceed ₹2,000. It does not apply to transactions of ₹2,000 or less, person-to-person (P2P) transfers, or small merchants receiving up to ₹1 lakh per month via QR code.
Which UPI transactions are exempt from MDR?

The following UPI transactions are completely exempt from MDR:

  • Everyday transactions ≤ ₹2,000: Zero MDR for all merchant categories.
  • Small QR merchants: Receiving up to ₹1 lakh per month via UPI QR code.
  • P2P transfers: Transfers between individuals (friends, family) remain always free.
  • RuPay Debit cards: Zero MDR maintained under Section 10A of the PSS Act.
  • UPI AutoPay: Recurring mandates for SIPs and subscriptions (reported NPCI clarification, 17 Sep 2026; unverified).
Is MDR charged on all UPI payments?
No. MDR is not charged on all UPI payments. About 96% of person-to-merchant (P2M) transactions remain completely free of MDR due to the ₹2,000 threshold and small-merchant exemptions. P2P transfers are never charged, and special essential categories pay a concessional flat ₹5 instead of the percentage rate.
Is GST applicable on UPI MDR charges?
GST applicability on UPI MDR is not confirmed; check with your bank. If your bank charges GST, it is 18% of the MDR amount, not of the transaction value. If charged, GST-registered businesses can claim Input Tax Credit (ITC) on the GST paid on MDR.
How is UPI MDR calculated for merchants?

UPI MDR is calculated as follows:

  • If transaction ≤ ₹2,000 or small merchant: MDR = ₹0.
  • Standard merchant > ₹2,000: MDR = Minimum(Amount × 0.4%, ₹300).
  • Fuel, telecom, rail, insurance, agri > ₹2,000: MDR = ₹5 flat.
  • Capital markets > ₹2,000: MDR = Minimum(Amount × 0.02%, ₹300).
  • Net settlement received = Gross Amount − (MDR + Applicable GST).
How can merchants avoid MDR charges?

Merchants can legally minimize or avoid MDR charges by:

  1. Promoting RuPay debit cards: RuPay debit card payments carry zero MDR under Section 10A of the PSS Act.
  2. Small merchant QR exemption: Micro-merchants collecting up to ₹1 lakh/month via QR codes remain fully exempt.
  3. Micro-ticket transactions: All transactions at or below ₹2,000 are automatically zero MDR.
  4. Claiming Input Tax Credit: GST-registered merchants can claim ITC on any GST paid on MDR charges.

Note: Artificially splitting a single customer bill into multiple smaller transactions to avoid MDR may violate bank and network merchant agreements.

What are MDR charges in Google Pay?
Google Pay is a Third-Party Application Provider (TPAP) operating on the UPI network. Google Pay itself does not set separate retail MDR rates or charge consumers. When customers pay via Google Pay QR or intent, acquiring banks process the payment under standard UPI rules (0.4% above ₹2,000) and settle the net funds to the merchant. UPI apps have been advised not to charge platform fees to customers.
Why is MDR charged on UPI transactions?
MDR is charged to ensure the financial sustainability and reliability of the digital payment ecosystem. Processing millions of instant payments requires servers, cloud infrastructure, bank APIs, cybersecurity, and dispute resolution. During 2020–2026, banks absorbed these costs under the zero-MDR mandate. The updated framework provides revenue to maintain system uptime while keeping about 96% of person-to-merchant (P2M) transactions free and allocating 5% of collections to a small-merchant enablement fund.
What is Zero MDR in UPI?
Zero MDR was a policy mandated by the Government of India starting 1 January 2020 under Section 10A of the Payment and Settlement Systems Act, 2007. It prohibited banks and PSPs from charging any MDR on UPI and RuPay debit card transactions to boost digital adoption. From 15 October 2026, Zero MDR continues for small merchants (≤ ₹1L/month), transactions at or below ₹2,000, and RuPay debit cards, while a 0.4% rate applies to larger commercial transactions.

📑 Sources & Regulatory References

Last updated: 20 September 2026. Independent informational guide based on published government and regulatory notifications.