India will start charging a merchant discount rate (MDR) on some Unified Payments Interface (UPI) payments on Oct. 15, 2026. The fee is 0.4% on person-to-merchant (P2M) payments above ₹2,000, capped at ₹300, and it ends the zero-MDR regime UPI has operated under since 2020. With nine days to go, trader bodies have called off a protest, the Supreme Court has declined to pause the rollout, and payment aggregators are still negotiating their cut.
- From Oct. 15, 2026, P2M UPI payments above ₹2,000 carry a 0.4% MDR, capped at ₹300 per transaction for payments of ₹75,000 and above, per the Department of Financial Services FAQ dated Sept. 15, 2026.
- Person-to-person (P2P) transfers, P2M payments up to ₹2,000, and small merchants in the P2PM category receiving up to ₹1 lakh a month stay at zero MDR. The government says about 96% of P2M transactions are unaffected.
- Railways, telecom, insurance, fuel, and agricultural inputs pay a flat ₹5 per transaction above ₹2,000. Capital market payments pay 0.02%, capped at ₹300.
- Merchants may not pass the MDR on to customers, and UPI apps may not add platform fees or hidden charges.
- Moneycontrol, citing an NPCI circular, reports a 40/30/20/10 split across the issuing bank, acquiring bank, UPI app, and the app’s partner bank. Payment aggregators get no prescribed share.
- A LocalCircles survey reported on Oct. 5 found 83% of surveyed merchants unwilling to absorb a 0.4% fee, which puts the no-pass-through rule under pressure on day one.
UPI is the largest real-time payment system in the world by transaction count. The government’s FAQ says it processed 2,451 crore transactions worth ₹29.9 lakh crore in August 2026 alone. Any pricing change on that base reshapes acquiring economics, checkout routing, and merchant billing across India’s fintech stack.
For operators, the question is practical. You need to know which transactions are chargeable, who keeps the money, what your systems must calculate on Oct. 15, and where the rules are still open.
What changes on Oct. 15, 2026
From Oct. 15, 2026, acquirers will deduct a 0.4% MDR from eligible P2M UPI payments above ₹2,000, with a ₹300 ceiling for payments of ₹75,000 and above. Flat ₹5 and 0.02% tiers apply to listed sectors. P2P payments, small P2M payments, and P2PM micro merchants remain free.
The Press Information Bureau release of Sept. 15, 2026 says the framework was introduced under the Payment and Settlement Systems Act, 2007, after deliberations by the UPI Steering Committee. The FAQ adds that operational parameters, fee distribution models, and category caps are set by the UPI and Services Steering Committee, which NPCI heads. It also says the Oct. 15 date gives “acquiring banks, payment aggregators, fintech applications, and corporate accounting platforms adequate lead time to update their software engines and billing systems.”
| Transaction type | MDR from Oct. 15, 2026 |
|---|---|
| P2P transfers, any amount | Zero |
| P2M payments up to ₹2,000 | Zero |
| P2PM small merchants receiving up to ₹1 lakh a month via UPI QR | Zero |
| P2M payments above ₹2,000 | 0.4% |
| P2M payments of ₹75,000 and above | Capped at ₹300 |
| Railways, telecom, insurance, fuel, agricultural inputs (above ₹2,000) | Flat ₹5 per transaction |
| Mutual funds, securities, stockbrokers, dealers | 0.02%, capped at ₹300 |
| UPI AutoPay and mandates (recurring payments) | No prescribed MDR |
| RuPay credit cards on UPI and pre-sanctioned credit lines | Outside this framework; separate credit product rules |
The FAQ’s own worked examples are useful for testing a fee engine. A ₹3,000 payment costs the merchant ₹12, a ₹50,000 payment costs ₹200, and a ₹1,00,000 payment costs ₹300 because the cap overrides the ₹400 percentage charge. A payment of exactly ₹2,000 incurs no MDR.
Utility bills such as electricity, water, and piped gas also fall under the flat ₹5 rate above ₹2,000. For education fees, the FAQ promises flat-fee or capped structures above ₹2,000 without publishing a number, so treat that category as unconfirmed until your acquirer gives you a rate.
Operator take: The rules turn on two inputs your systems may not store cleanly today: the merchant’s category and its P2M or P2PM classification. Fix those fields before you fix the rate math.
Who gets paid: the MDR split
According to Moneycontrol’s reading of NPCI’s Sept. 15 circular, the issuing bank gets 40% of the MDR, the acquiring bank 30%, the UPI app 20%, and the app’s partner bank 10%. On a ₹10,000 payment, that is ₹16, ₹12, ₹8, and ₹4 of the ₹40 fee.
Payment aggregators such as Razorpay, Cashfree, PayU, and Pine Labs do not appear in that formula. ETBFSI reported on Oct. 5 that aggregators are negotiating to keep 50% to 80% of the acquiring bank’s 30% allocation. On a ₹10,000 payment, that works out to ₹6 to ₹9.60 for the aggregator.
Business Standard reported in August that aggregators wanted a fixed, direct share and that the main obstacle is structural. Aggregators are not direct members of the UPI network, and they reach it through bilateral sponsor bank relationships. Direct membership would be a decision for the Reserve Bank of India (RBI), according to the same report.
Two more deductions matter for modeling. The PIB release says 5% of total MDR collections will go to a fund that supports UPI adoption among small merchants, with the detailed framework to be finalized in consultation with RBI within three months. The LocalCircles report, as summarized by India Today, notes that 18% GST applies to the MDR, with input tax credit available to merchants.
Why merchants and traders are pushing back
LocalCircles surveyed more than 32,000 businesses across 242 districts. Only 17% said they would absorb an MDR of 0.4% or more, and 41% said they would not bear any MDR at all. Another 9% said they do not accept UPI.
The consumer side of the same research drew more than 67,000 responses across 291 districts. If a merchant added a fee on UPI payments above ₹2,000, only 14% said they would keep paying by UPI. Cash (27%) and credit cards (26%) were the most common alternatives.
LocalCircles estimates that UPI transaction value could fall by about 10% and volume by about 4% in the first full month, assuming some merchants pass the cost on. Its reasoning rests on the shape of the base. P2M payments above ₹2,000 were about 4% of merchant transactions by volume in August 2026, yet they carried about 67% of merchant payment value.
Trade bodies took the fight to the Finance Ministry. Per the Confederation of All India Traders (CAIT), a delegation of about 20 trade leaders met Finance Minister Nirmala Sitharaman. Afterward, the All India Consumer Products Federation and the All India Mobile Retailers Association withdrew the “No UPI Day” they had called for Oct. 2, citing an assurance that their concerns would “receive due consideration.” The Oct. 15 date has not moved.
Where the legal and policy risk sits
The Supreme Court declined to stay the framework while it hears a public interest petition, Times Now reported on Sept. 28. The petition, filed by advocate Anjan Datta, challenges the Finance Ministry’s Sept. 14 and 15 notifications. The court issued notice to the Centre, RBI, and NPCI and asked for an affidavit on the basis and nature of the charge.
Arguing for RBI, the Additional Solicitor General described the MDR as “a settlement fee amongst the players, which NPCI facilitates,” and said the government takes none of it. The PIB release makes the same point and says the money goes to banks, payment service providers, and UPI app providers.
Several rules that operators care about are still unwritten. LocalCircles points out that the framework does not yet spell out penalties or a refund path for customers who are wrongly charged. The aggregator share, the small merchant fund mechanics, and any change to direct UPI participation are all still pending.
Operator take: Build for Oct. 15 as announced, and keep the rate table configurable. A court order, a revised category list, or a new enforcement circular could each arrive after launch.
Operator take: what payments and fintech operators should do now
If you are a payment aggregator, gateway, or PayFac
- Implement the full rate table: the ₹2,000 threshold, the 0.4% rate, the ₹300 cap, the flat ₹5 sectors, and the 0.02% capital markets tier. Test it against the FAQ’s ₹3,000, ₹50,000, and ₹1,00,000 examples.
- Audit merchant category tagging so that fuel, insurance, telecom, utility, and agricultural input merchants actually land in the ₹5 tier. A wrong code costs your merchant up to ₹300 on a single payment.
- Put your share of the acquiring bank’s 30% in writing with each sponsor bank before Oct. 15. If your pricing page promises zero-fee UPI, update it, and see our PayFac as a service guide for how other platforms structure pass-through pricing.
- Run the velocity check the FAQ describes. P2PM merchants with UPI inflows above ₹1 lakh a month for three consecutive months move to the P2M category, and your merchant onboarding stack should flag them automatically.
If you run a SaaS platform, marketplace, or billing product
- Check every checkout and invoice template for UPI surcharges or convenience fees. The FAQ says merchants cannot pass MDR to customers, so any line item tied to UPI is a compliance risk.
- Move eligible recurring billing onto UPI AutoPay mandates. The FAQ says mandates for utility bills, OTT subscriptions, and recurring investments carry no prescribed MDR.
- Update reconciliation for net settlement. Settlements will arrive net of MDR plus GST on payments above ₹2,000, so your payment reconciliation software needs the new fee lines mapped.
If you are a merchant or a high-ticket platform
- Compare costs by rail. The FAQ puts debit card MDR at up to 0.90% and credit card MDR at 1.5% to 2.5%, so UPI at 0.4% capped at ₹300 still costs less for most baskets. Our payment orchestration guide covers routing rules that weigh cost against approval rates.
- Brief risk and finance teams on ticket splitting. CAIT has warned that retailers could split bills to stay under ₹2,000, and that pattern will show up in your transaction data before any policy addresses it.
If you lend on UPI rails
- Confirm how your product is classified. The FAQ says RuPay credit cards on UPI and pre-sanctioned credit lines follow separate credit product rules, so this 0.4% schedule does not apply to them.
If you build instant payments outside India
- Treat UPI as the reference case for funding a free instant payment rail at scale. The tiered, capped design is a useful benchmark for anyone pricing FedNow and RTP acceptance.
What to watch after Oct. 15
- NPCI’s monthly statistics for October and November, which will show whether high-value P2M volume shifts to cash or cards as LocalCircles predicts.
- The Centre’s affidavit and the next Supreme Court hearing on the petition.
- The small merchant fund framework, due within three months of the Sept. 15 announcement in consultation with RBI.
- Any formal share for payment aggregators or a move toward direct UPI participation.
- Enforcement guidance on pass-through, including penalties and a customer refund mechanism.
FAQ
When does the UPI MDR start?
The MDR takes effect on Oct. 15, 2026. It applies 0.4% to eligible person-to-merchant UPI payments above ₹2,000, capped at ₹300 for payments of ₹75,000 and above, according to the Department of Financial Services FAQ dated Sept. 15, 2026.
Do customers pay the UPI MDR?
No. The merchant bears the MDR through its acquiring bank. The FAQ says merchants cannot pass the charge on to customers, and UPI apps cannot levy platform fees or other charges on UPI payments.
How much MDR applies to a ₹1 lakh UPI payment?
The merchant pays ₹300. The 0.4% rate would produce ₹400, but the ₹300 cap applies to all eligible payments of ₹75,000 and above. Flat ₹5 and 0.02% tiers apply instead in the listed sectors.
Is there MDR on UPI AutoPay or recurring mandates?
The FAQ says UPI mandates and AutoPay for utility bills, OTT subscriptions, and recurring investments do not carry prescribed MDR charges. Confirm the treatment of your specific mandate flows with your acquiring bank before Oct. 15.
Does the 0.4% MDR apply to RuPay credit cards on UPI?
No. The FAQ says credit-linked UPI payments, including RuPay credit cards on UPI and pre-sanctioned credit lines, follow separate credit product rules. The 0.4% schedule covers direct account-to-account merchant payments.
