AI-Powered Summary
- Starting October 15, 2026, a 0.4% Merchant Discount Rate (MDR) will apply to UPI person-to-merchant (P2M) transactions above ₹2,000, with a cap of ₹300 for payments of ₹75,000 and above.
- Essential sectors like railways, telecom, and agriculture inputs will have a flat ₹5 MDR for transactions above ₹2,000, while small merchants with monthly UPI QR receipts under ₹1 lakh remain exempt.
- The MDR framework aims to create a sustainable revenue model for UPI infrastructure, with 5% of MDR revenue allocated to a fund supporting small merchants in underserved regions.
- Merchants must update reconciliation processes to account for MDR deductions and cannot pass these charges to customers as surcharges or platform fees.
- Existing UPI QR codes and soundboxes remain functional, and no hardware changes are required due to this update.
- Merchants are advised to confirm their category classification and settlement details with their payment gateway or acquiring bank before the changes take effect.
NPCI’s new UPI MDR takes effect October 15, 2026: a 0.4% charge on P2M payments above ₹2,000. Here’s what it means for your settlements, pricing, and payouts.
If you accept UPI payments in your business, there’s a change you need to know about. On September 15, 2026, the National Payments Corporation of India (NPCI) issued a circular introducing a Merchant Discount Rate (MDR) on select person-to-merchant (P2M) UPI transactions, effective October 15, 2026.
For years, UPI has been free for both consumers and merchants. That changes now, but only in specific, defined slabs. This guide breaks down exactly what the new UPI MDR means if you run a business, so you can plan your pricing, reconciliation, and payment gateway conversations before the change kicks in.
Table of Contents
What Changed: 0.4% MDR on UPI Payments Above ₹2,000
Starting October 15, 2026, eligible P2M UPI transactions above ₹2,000 will attract an MDR of 0.4%. This is a merchant-side charge, not a consumer-side one. The government has been explicit that UPI app providers cannot pass this on to shoppers as a platform fee or hidden charge, and businesses are expected to continue showing the same price to customers regardless of payment mode.
To put the number in context:
- A customer paying you ₹3,000 via UPI would mean an MDR of ₹12 (0.4% of ₹3,000).
- A ₹50,000 payment would carry an MDR of ₹200.
- Payments of ₹75,000 and above are capped, so even a ₹1 lakh payment attracts a maximum MDR of ₹300, not ₹400.
Payments up to ₹2,000 continue to carry zero MDR. According to NPCI, this bracket covers the large majority of P2M UPI transaction volume, so routine, low-ticket sales are not affected.
The change follows an amendment to the Payment and Settlement Systems (PSS) Act, 2007, which gives the government the legal basis to notify which electronic payment modes can carry charges. On September 14, 2026, the government notified that UPI transactions up to ₹2,000 stay at zero MDR, and NPCI’s circular the following day filled in the operational detail, including fee distribution and category-wise caps.
The Full UPI MDR Slab Structure
Not every transaction above ₹2,000 is treated the same way. Here’s the complete breakdown merchants should know:
| Transaction / Category | MDR Applicable | Key Condition |
| P2P transactions (person to person) | Zero | No charge, regardless of value |
| P2M transactions up to ₹2,000 | Zero | No MDR |
| P2M transactions above ₹2,000 | 0.4% | Standard rate, shared among ecosystem participants |
| P2M transactions ₹75,000 and above | 0.4%, capped at ₹300 | Maximum MDR of ₹300 per transaction |
| Essential sectors (railways, telecom, insurance, fuel, agri-inputs) | ₹5 flat | Applies above ₹2,000, instead of the standard 0.4% |
| Capital market transactions (mutual funds, securities, brokers, dealers) | 0.02%, capped at ₹300 | Lower rate to support retail investing |
| Small P2PM merchants | Zero | Up to ₹1 lakh in monthly UPI QR receipts |
Two categories are worth calling out specifically because they cover a meaningful share of merchant transactions.
Essential sector businesses get a flat, predictable fee
If your business falls under railways, telecom, insurance, fuel, or agriculture inputs, you don’t pay the standard 0.4%. Instead, transactions above ₹2,000 attract a flat ₹5 MDR. NPCI’s data shows these categories make up close to 17% of P2M UPI volume and around 46% of P2M value, so the flat structure is meant to keep costs predictable for thin-margin, high-ticket businesses.
Small merchants stay MDR-free under the P2PM classification
If you’re a small vendor receiving payments through a UPI QR code, you may fall under the Person-to-Person-Merchant (P2PM) framework rather than standard P2M. Merchants in this bucket continue to receive UPI payments at zero MDR, as long as total monthly UPI QR receipts stay within ₹1 lakh.
A single payment above ₹2,000 does not automatically move you out of this exempt category. Acquiring banks and payment service providers are expected to monitor account activity over time, and a merchant is only shifted to the standard P2M category after consistently crossing ₹1 lakh a month for three consecutive months. Existing QR codes and soundboxes will keep working as-is; there’s no infrastructure swap required because of this change.
Why the Government Introduced MDR on UPI
NPCI’s stated reasoning is scale and sustainability. In August 2026 alone, UPI processed roughly 2,451 crore transactions worth about ₹29.9 lakh crore. Running infrastructure at that volume, servers, bandwidth, cybersecurity, fraud detection, and banking technology, costs money, and NPCI has argued that relying entirely on annual government incentive payouts isn’t a durable funding model.
The MDR framework is intended to create a predictable, ongoing revenue stream instead. Part of the collections (5% of total MDR revenue) is earmarked for a dedicated fund to expand UPI adoption among small merchants, particularly in Tier 3 to Tier 6 towns, the Northeast, Jammu & Kashmir, and Ladakh. The detailed structure of that fund is expected to be finalised with the Reserve Bank of India within three months of the circular.
This also lines up with a recommendation from Parliament’s Standing Committee on Finance, which had previously flagged the need for a viable, long-term revenue mechanism to keep UPI financially sustainable.
What This Means for Your Settlements and Reconciliation
For merchants, the practical impact shows up in two places: the net amount you receive, and how you reconcile it.
Your payout on eligible transactions will be slightly lower. On a qualifying ₹3,000 UPI payment, you’ll see ₹12 deducted as MDR, similar in concept to the merchant discount rate businesses already account for on card payments. This is shared among the ecosystem participants involved in processing the transaction, including the acquiring bank, the app provider, and, where applicable, the payment aggregator.
You can’t charge customers extra to cover it. The government has been clear that consumers should keep paying the price shown at checkout, and UPI apps are barred from adding platform fees. If you’re currently pricing with the assumption that UPI is a zero-cost acceptance channel, you’ll want to revisit that assumption for your higher-ticket transactions specifically, not across the board.
Reconciliation reports will need a new line item. Once MDR applies, your settlement statements for eligible P2M transactions will reflect a deduction that wasn’t there before. If your finance or accounting team reconciles UPI receivables against invoiced amounts, build in the expectation of a variance on transactions above ₹2,000 starting October 15.
Because exact deduction mechanics, timing, and reporting formats can vary by acquiring bank and payment aggregator, it’s worth confirming directly with your payment gateway or banking partner how the MDR will appear in your settlement files and dashboards.
Who Actually Receives the 0.4%
Multiple analysts covering the announcement have estimated a rough revenue split, though this hasn’t been confirmed as an official, binding formula: broadly, a majority share flowing to issuing and acquiring banks, a portion to UPI app providers, and a smaller share to non-bank payment aggregators, in return for the infrastructure, risk, and fraud-prevention work each layer carries. Treat these splits as industry estimates rather than confirmed figures, and rely on your own payment partner for the specifics relevant to your account.
What Merchants Should Do Before October 15
- Check which category you fall under. If you’re a smaller merchant taking UPI QR payments, confirm with your bank or payment provider whether you qualify for the zero-MDR P2PM classification, and what your monthly receipt threshold looks like.
- Talk to your payment gateway or PSP now, not later. Ask how the new MDR will be reflected in your settlement reports, whether it changes your existing merchant discount rate structure, and when the update takes effect on your account specifically.
- Review pricing for high-ticket transactions. If a meaningful share of your revenue comes from single UPI payments above ₹2,000, work out the actual cost impact using the slabs above rather than assuming a flat 0.4% everywhere; remember the ₹300 cap on transactions of ₹75,000 and up.
- Update your reconciliation process. Make sure your accounting or finance workflow can account for the new deduction on eligible transactions, so your books match what actually lands in your account.
- Don’t pass the charge to customers as a surcharge. The framework doesn’t permit this, so keep your checkout pricing consistent across payment modes.
- Keep your QR and soundbox setup as-is. No hardware or QR code changes are required because of this update.
- Watch for the small merchant support fund details. If you’re a small or growing business, the RBI-NPCI framework for the support fund (expected within three months) could be directly relevant to your acceptance costs going forward.
How PayU Can Help You Navigate This
As your payment gateway partner, PayU’s role is to make sure changes like this one are as operationally smooth as possible on your end, from accurate settlement reporting to clarity on which category your transactions fall under.
If you run recurring or subscription billing through PayU’s recurring payments suite, or handle high-ticket B2B and international payments, it’s worth reviewing how the new UPI MDR slabs intersect with your specific transaction mix.
For merchants building or maintaining custom checkout integrations, PayU’s developer documentation is the place to confirm any technical or reporting updates tied to this change. And because pricing, eligibility, and settlement details can vary by merchant category and approval, always verify current terms directly with PayU or your account manager before making pricing decisions based on this article.
FAQs
No. Person-to-person (P2P) UPI transfers remain completely free, regardless of the amount.
If your total UPI QR receipts stay within ₹1 lakh a month, you fall under the P2PM category and continue to pay zero MDR. You’d only move to the standard P2M category after consistently exceeding that threshold for three straight months.
If it’s a P2M transaction and you don’t qualify for an exemption, the MDR would be 0.4%, or ₹12, on that transaction.
Yes. For transactions of ₹75,000 and above, MDR is capped at ₹300, no matter how large the payment.
No. The framework does not allow merchants or UPI apps to pass this cost on to consumers as a surcharge or platform fee.
No. Existing UPI QR codes and soundboxes will continue to work without any hardware changes.
October 15, 2026.
This article reflects the UPI MDR framework as announced by NPCI on September 15, 2026, based on publicly reported details. Availability, exact settlement mechanics, and category classifications may vary by merchant and payment partner. Merchants should verify current pricing, eligibility, and setup requirements with PayU or their acquiring bank before making business decisions based on this information.
