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- The National Payments Corporation of India (NPCI) has deferred the rollout of the 0.4% Merchant Discount Rate (MDR) on UPI payments above ₹2,000 until after Diwali, with the exact date yet to be announced.
- The MDR applies only to person-to-merchant (P2M) UPI transactions above ₹2,000, while payments up to ₹2,000 remain free of charge.
- 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 part of the revenue allocated to support small merchants in underserved regions.
NPCI has deferred the UPI MDR rollout until after Diwali, but the 0.4% charge on P2M payments above ₹2,000 has not been cancelled. Here’s what it means for your settlements, pricing, and payouts.
Update, October 15, 2026: As of October 13, NPCI’s UPI and Services Steering Committee has deferred the MDR rollout that was due to begin today. MDR on select P2M UPI transactions will now be implemented immediately after Diwali, on a date NPCI will notify separately. This article has been updated to reflect the change.
If you accept UPI payments in your business, there’s a change you need to know about, and as of October 15, 2026, the timeline has shifted. 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, originally effective October 15, 2026. On October 13, NPCI deferred that rollout until after Diwali.
For years, UPI has been free for both consumers and merchants. That is set to change, but only in specific, defined slabs, and not before the festive season. This guide breaks down what the new UPI MDR means if you run a business, so you can use the extra time to plan your pricing, reconciliation, and payment gateway conversations before it goes live.
Table of Contents
What Changed: 0.4% MDR on UPI Payments Above ₹2,000, Now Deferred
As of October 15, 2026, the 0.4% MDR on eligible P2M UPI transactions above ₹2,000 has not come into effect. On October 13, NPCI’s UPI and Services Steering Committee decided to hold the rollout back, keeping the festive season in mind. In its statement, NPCI said MDR on select P2M UPI transactions “shall be implemented immediately post Diwali on a date to be notified separately.”
Here is what we know, and what we don’t, as of today:
- Deferred, not withdrawn: The framework announced on September 15 still stands. Only the start date has moved.
- No new date yet: NPCI has said the date will be notified separately. Earlier media reports had pointed to January 2027, but NPCI’s statement does not confirm that.
- Reason for the delay: Merchant bodies, fintechs, and payments companies had asked for more time, citing consumer sentiment and business costs during festive sales.
- Rates and slabs: NPCI’s latest note does not restate rates or thresholds, so the figures below follow the September 15 circular and may be updated in the final notification.
Once MDR goes live, eligible P2M UPI transactions above ₹2,000 are expected to 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
As per NPCI’s September 15 circular, the slabs below apply once MDR is implemented. Not every transaction above ₹2,000 is treated the same way, so 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. The deferment does not change this underlying rationale.
What This Means for Your Settlements and Reconciliation
For now, nothing changes in your settlements. As of October 15, 2026, UPI payments continue to settle without an MDR deduction. Once MDR goes live, the practical impact will show 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 from the day NPCI’s notified go-live date arrives.
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 While MDR Is on Hold
The delay gives you extra time, but with no date confirmed yet, treat it as preparation time rather than a reprieve. Based on NPCI’s statement, you should not expect MDR on payments received before Diwali; confirm the exact cut-over with your payment partner once the date is notified. In the meantime, here is a practical checklist:
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 of the September circular) could be directly relevant to your acceptance costs going forward.
Watch for NPCI’s notification: The go-live date will be announced separately, so keep an eye on official NPCI communication and your payment partner’s updates.
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.
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 on the PayU pricing page or with 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.
The rollout was originally due on October 15, 2026. As of October 13, NPCI has deferred it until immediately after Diwali, on a date to be notified separately. As of October 15, 2026, the new date has not been announced.
No. As of today, NPCI has described the change as a deferment. The MDR framework announced on September 15th 2026 has not been withdrawn, and implementation is still planned for after Diwali.
Based on NPCI’s statement, MDR is to be implemented immediately after Diwali, so it is not expected to apply to payments received before then. Confirm the exact cut-over date with your payment gateway once NPCI notifies it.
This article reflects the UPI MDR framework as announced by NPCI on September 15, 2026, and the deferment announced on October 13, 2026, based on publicly reported details. As of October 15, 2026, the revised implementation date has not been announced. 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.
