What MDR is, and why UPI never had one
The merchant discount rate is the fee a business pays its bank or payment provider for accepting a payment — the reason card payments cost a shop 1–2%. Since January 2020, government policy has set the MDR on UPI and RuPay debit card payments to zero. That is a big part of why every shop, auto-rickshaw and website in India takes UPI.
Banks and payment apps have argued for years that running UPI costs money. The new framework is the first step towards a fee — limited to larger payments to businesses.
What changes
| Payment | Fee under the new framework |
|---|---|
| Person to person (sending money to family or friends) | Free |
| Person to merchant, ₹2,000 or less | Free |
| Person to merchant, above ₹2,000 (eligible payments) | 0.4%, paid by the merchant |
| Person to merchant, ₹75,000 and above | 0.4%, capped at ₹300 per payment |
Some reports mention lower flat fees for certain sectors. NPCI has not yet published the final list of exemptions with the new date, so wait for the circular — or your gateway’s notice — before you work out exact figures.
When it starts
The fee was set to begin on 15 October 2026. On 13 October, NPCI’s UPI steering committee deferred it because of the festive season, after merchant groups and payment companies raised concerns. NPCI said it would start after Diwali — 8 November this year — on a date to be announced. Some reports say a delay to January 2027 is being considered. Until a new date is notified, UPI payments to merchants stay free.
How to prepare
- 01
Find your share above ₹2,000
Your gateway dashboard or bank statement shows UPI payments by amount. For a kirana shop it may be tiny; for a furniture store or clinic it may be most of the income.
- 02
Read your gateway agreement
Many gateways already charge a platform fee for UPI checkout. Ask how the new MDR will be shown — added on top, or included.
- 03
Update your reconciliation
Settlements will arrive net of the fee. Your billing or accounting software should record the fee and its GST as an expense, or your books won’t match the bank.
- 04
Decide on pricing
Most businesses absorb a 0.4% fee. If you change prices instead, show the full price clearly at checkout — hidden charges added late in checkout are treated as a dark pattern.
If your billing software or online store reconciles payments automatically, now is a good time to check that it can handle a deduction on UPI settlements, as it already does for cards.
Questions people ask
- Will customers pay more for UPI?
- No. The fee is charged to the merchant. Customers keep paying the bill amount, and person-to-person transfers stay free.
- Does it apply to payments under ₹2,000?
- No. Payments to merchants of ₹2,000 or less stay free under the announced framework.
- When exactly does it start?
- NPCI said after Diwali (8 November 2026), on a date it will announce. Check your gateway’s notices or NPCI’s circulars for the final date.
- Is GST charged on the MDR?
- Expect GST on the fee, as with other payment gateway charges. Your accountant can confirm how to claim it.
Sources
- DSIJ — UPI MDR rollout deferred: NPCI pushes 0.4% charge beyond Diwali
- Kalkine — UPI merchant charges delayed as NPCI pushes rollout beyond Diwali
- CA Club India — UPI transaction charges from 15 October 2026: latest update
Rules and prices change. Check the official source before you rely on a date or a number.
Planning something like this?
Tell us what you want to build. You’ll get a written scope and a fixed quote before any work starts.