Write News

96% of merchants accepting UPI payments are exempt from MDR; what did the NPCI—the government body operating UPI—say?

Posted on 22nd Sep 2026 04:15 pm by rohit kumar

The National Payments Corporation of India (NPCI) has clarified concerns surrounding the revised Merchant Discount Rate (MDR) framework for Unified Payments Interface (UPI), stating that the new rules will not make UPI transactions generally chargeable for consumers.

 

Under the revised framework, MDR of 0.4% will apply to specified person-to-merchant (P2M) UPI transactions above ₹2,000 from October 15, 2026. However, payments up to ₹2,000 will continue to remain free of MDR, while genuine person-to-person (P2P) UPI transactions will remain free irrespective of the amount.

 

The Finance Ministry has also said that around 96% of P2M UPI transactions will remain unaffected because they are either within the ₹2,000 threshold or covered by the zero-MDR framework for small merchants.

 

UPI MDR: What Changes From October 15?

 

The new framework does not impose a blanket charge on UPI users.

 

For specified merchant payments, the structure will work as follows:

 

UPI transaction MDR treatment

P2P UPI payment No MDR

P2M payment up to ₹2,000 No MDR

Eligible P2M payment above ₹2,000 0.4% MDR

Eligible transaction of ₹75,000 or more MDR capped at ₹300

Small merchants receiving up to ₹1 lakh/month via UPI QR Zero MDR

Essential/thin-margin sectors above ₹2,000 Flat ₹5 MDR

Capital-market transactions 0.02% MDR, capped at ₹300

 

The government has clarified that MDR is not a tax collected by the government or NPCI. Instead, it is distributed among participants in the payment ecosystem, including banks, payment service providers and UPI application providers.

 

No MDR on UPI Payments Up to ₹2,000

 

One of the biggest points of clarification is the ₹2,000 threshold.

 

All specified P2M UPI transactions of ₹2,000 or less will remain free of MDR. This means a customer paying ₹500, ₹1,000 or ₹2,000 to an eligible merchant will not face the new MDR.

 

The government estimates that only around 4% of merchant transactions will actually attract MDR, leaving approximately 96% unaffected.

 

Small Merchants With Up to ₹1 Lakh Monthly UPI Receipts Exempt

 

NPCI has also defined a zero-MDR category for small merchants.

 

Merchants receiving up to ₹1 lakh per month through UPI QR codes under the relevant small-merchant category will continue to receive payments without MDR, even when an individual transaction exceeds ₹2,000.

 

This provision is particularly relevant for street vendors, neighbourhood stores and other micro-businesses that rely heavily on UPI QR payments.

 

As a result, the new MDR framework is not simply a rule that automatically charges every merchant whenever a customer pays more than ₹2,000.

 

Will GST Be Charged on UPI Transactions?

 

There is an important distinction between GST on a UPI payment and GST on MDR.

 

The new framework does not introduce GST on the entire UPI transaction amount. Instead, GST can apply to the MDR charged on eligible transactions.

 

Government sources have said the GST applicable to MDR can be claimed as input tax credit by eligible GST-registered businesses, subject to the applicable tax rules.

 

For example, if an eligible ₹10,000 P2M transaction attracts MDR of 0.4%, the MDR would be ₹40. Any applicable GST would be calculated on that MDR amount—not on the entire ₹10,000 payment.

 

This distinction is important because headlines suggesting that UPI payments themselves will attract an additional GST charge can create confusion.

 

Will Customers Have to Pay the MDR?

 

According to the Finance Ministry, customers will not be required to pay MDR.

 

Banks have been advised to ensure that merchants do not pass the MDR cost on to customers, while UPI application providers have been prohibited from imposing platform fees or hidden charges on users in this context.

 

Therefore, the introduction of MDR should not be interpreted as a new 0.4% UPI transaction fee for consumers.

 

Maximum MDR Cap of ₹300

 

For eligible standard P2M transactions, MDR is set at 0.4%, with a maximum cap of ₹300 for transactions of ₹75,000 or more.

 

Essential Sectors to Pay Flat ₹5 MDR

 

The revised framework also provides a special rate for essential and thin-margin sectors.

 

Transactions above ₹2,000 involving sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5 per transaction.

 

The government says the lower flat rate is designed to provide greater cost certainty to businesses operating in sectors where margins can be relatively narrow.

 

P2P UPI Transactions Will Remain Completely Free

 

There is no change to the treatment of genuine person-to-person UPI payments.

 

Whether someone transfers ₹5,000, ₹50,000 or another permitted amount to another individual, the new merchant MDR framework does not apply to genuine P2P transactions.

 

The Finance Ministry has reiterated that P2P UPI transactions will remain completely free regardless of the amount transferred.

 

Why the 96% Figure Matters

 

The government says approximately 96% of P2M UPI transactions will remain unaffected.

 

This figure combines transactions below the ₹2,000 threshold with payments covered by the zero-MDR framework for small merchants.

 

That means the new framework is targeted at a relatively small portion of higher-value merchant transactions rather than all UPI payments.

 

What Is MDR and Where Does the Money Go?

 

MDR stands for Merchant Discount Rate.

 

It is a fee associated with processing a digital merchant payment. Under the new UPI framework, the MDR is not collected by the government as a tax.

 

The Finance Ministry has said the amount is distributed among participants in the payment ecosystem, including banks, payment service providers and UPI application providers, to support the operation and expansion of UPI.

 

Is UPI Becoming More Expensive for Consumers?

 

For consumers, the answer is not in the form of a new UPI transaction fee.

 

The revised framework places the MDR within the merchant payment ecosystem. Customers continue to have free P2P UPI transactions, while P2M payments up to ₹2,000 remain free and small merchants meeting the applicable criteria also remain under zero MDR.

 

However, merchants and businesses should understand their own MDR and GST treatment before the new framework takes effect.

0 0 Tweet