From 15 October 2026, UPI MDR charges return for larger merchant payments. Who pays 0.4%, where the ₹300 cap bites, and who stays at zero.
· Payments · 7 min read · Updated
What is UPI MDR?
MDR stands for Merchant Discount Rate. It is the fee a bank or payment aggregator deducts from a merchant when a customer pays them by card or UPI. The customer never sees or pays this charge — the merchant does, through a slightly lower settlement amount.
UPI was launched with a zero MDR regime to boost digital payments. That broad zero-MDR period ends on 15 October 2026, when NPCI's new UPI MDR framework comes into effect for certain merchant transactions.
Important: UPI MDR is merchant-side only. Consumers are never charged for paying via UPI, and merchants are not allowed to pass the fee on to customers.
Which UPI payments attract MDR from 15 October 2026?
MDR is charged only on Person-to-Merchant (P2M) UPI payments above ₹2,000. Specifically:
| Scenario | MDR from 15 Oct 2026 |
|---|---|
| P2M payment up to ₹2,000 | Zero MDR |
| P2M payment above ₹2,000, below ₹75,000 (standard merchant) | 0.4% of the amount |
| P2M payment of ₹75,000 and above | 0.4%, capped at ₹300 |
| Railways / telecom / insurance / fuel / agri inputs | Flat ₹5 per transaction above ₹2,000 |
| Mutual funds / securities / stockbrokers | 0.02% capped at ₹300 |
| Small merchants (P2PM, up to ₹1 lakh/month via QR) | Zero MDR |
| Person-to-Person (P2P) transfers | Zero MDR |
Where the ₹300 cap actually kicks in
This is the detail most merchants get wrong. The ₹300 cap is not a blanket ceiling on every transaction — it applies once the transaction reaches ₹75,000.
At the standard 0.4% rate, 0.4% of ₹75,000 is exactly ₹300. So:
- Below ₹75,000 — you pay 0.4% of the full amount. A ₹50,000 payment costs you ₹200.
- ₹75,000 and above — the MDR stops at ₹300 and does not keep growing. A ₹5,00,000 payment still costs you ₹300, not ₹2,000.
This is confirmed in the official Government of India FAQ on the MDR framework, which states that "for transactions of ₹75,000/- and above, the MDR will be capped at ₹300 per transaction."
Practically, almost no small merchant ever reaches ₹75,000 on a single UPI payment, so for the vast majority of businesses the cap is theoretical and the real question is only whether a payment clears ₹2,000.
How to calculate UPI MDR for your business
For a standard merchant, the formula is simple:
- Transaction amount × 0.4% (0.004)
- with a maximum (cap) of ₹300 per transaction, reached at ₹75,000
- The ₹2,000 threshold determines whether the transaction is eligible; it is not subtracted from the amount used in the percentage calculation.
Example 1: A customer pays you ₹15,000 by UPI.
- MDR = 0.4% × ₹15,000 = ₹60
Example 2: A customer pays you ₹50,000 by UPI.
- 0.4% × ₹50,000 = ₹200
- Still under ₹75,000, so the cap does not apply. MDR = ₹200
Example 3: A customer pays you ₹95,000 by UPI.
- 0.4% × ₹95,000 = ₹380
- Above ₹75,000, so the ₹300 cap applies. MDR = ₹300
Essential sectors (railways, telecom, insurance, fuel, agro inputs) pay a flat ₹5 per transaction regardless of how large the amount is above ₹2,000.
Capital-market payments (mutual funds, SEBI-registered stockbrokers and investment platforms) pay just 0.02%, capped at ₹300.
Small merchants — street vendors and neighbourhood shops receiving up to ₹1 lakh per month via UPI QR under the small-merchant P2PM framework — pay zero MDR on every transaction.
Who pays the MDR — merchant or customer?
The merchant pays. The fee is deducted from the amount the business receives, so the customer always pays the exact price displayed. Merchants also cannot legally recover an MDR surcharge from customers, unlike some card surcharges.
If you accept UPI payments, treat MDR like any other operating cost, and factor it into your pricing where volumes are high.
Is there any change for P2P and small payments?
No. Two large categories stay completely free:
- Person-to-Person (P2P) transfers, like sending money to family or friends, remain zero MDR.
- All UPI payments up to ₹2,000, including low-value merchant payments, remain zero MDR.
In practice, most everyday merchant UPI payments in India are small-ticket, so the vast majority of transactions will continue to be MDR-free.
Calculate your MDR charge
Instead of doing the math manually, use the UPI MDR Calculator on Invoice Mitra:
- Enter your transaction amount.
- Select your merchant category (standard, essential sector, capital market, or small merchant).
- Instantly see the MDR fee, whether it applies, and who bears it.
The calculator is free, no signup needed, and shows both the standard 0.4% rule and the special sector rates.
Frequently Asked Questions
Will my customer be charged for paying by UPI? No. UPI MDR is a merchant-side fee. Customers always pay the exact amount shown, and merchants cannot add an extra surcharge.
What if my payment is exactly ₹2,000? Any UPI payment of ₹2,000 or less is MDR-free. MDR applies only above ₹2,000.
I am a small shop taking UPI QR payments. Am I affected? If you receive up to ₹1 lakh per month via QR under the small-merchant P2PM framework, you continue to pay zero MDR on all transactions.
Can I recover the MDR from my customer? No. The NPCI framework does not allow merchants to pass the merchant discount rate on to UPI customers.
How is the ₹300 cap applied? The 0.4% fee is capped at ₹300 per transaction, and the cap only applies once a payment reaches ₹75,000. Below ₹75,000 you pay 0.4% of the full amount; at ₹75,000 and above the MDR stops growing at ₹300.
Does the MDR apply to a payment of exactly ₹2,001? Yes. Any P2M payment above ₹2,000 attracts MDR, so a ₹2,001 payment would be charged 0.4%, which works out to about ₹8. There is no separate buffer around the threshold.
Where can I get help with my merchant category? If you are unsure which category you fall into or how settlement works for you, use the UPI MDR calculator and check with your bank or payment aggregator.
Start planning for October 2026
UPI MDR is returning for larger merchant transactions, but most small payments stay free. Know your category, run your numbers through the UPI MDR Calculator, and price your goods and services accordingly.