Updated 11 November 2026. A plain-language summary, not legal advice. The MDR start date had not been notified at the time of writing.
Short answer: No. Under the new UPI pricing framework, the merchant discount rate (MDR) is payable by the merchant, not the customer. In a counter-affidavit filed in the Supreme Court and dated 3 November 2026, NPCI said merchants and UPI apps cannot pass this charge on to consumers, and that UPI apps may not add platform fees on UPI payments. So a shop should not add a "UPI charge" or "convenience fee" line to a customer's bill. Most small payments will not carry MDR at all.
What NPCI told the Supreme Court
As MediaNama reported, NPCI filed its reply to a petition challenging the new UPI charges. The key points:
- MDR is a commercial charge shared among the banks and apps in a UPI payment. It is not a tax.
- Merchants and UPI apps cannot pass MDR on to customers. NPCI called this binding.
- A bank or app that breaks the rule would be in breach of its agreements with NPCI and could face action, up to losing UPI membership.
- NPCI said the charge would apply to only about 4% of merchant transactions, since around 96% of merchant payments are ₹2,000 or less.
When MDR applies at all
As set out in reports such as Business Today, the framework charges MDR only on some merchant payments:
| Payment | MDR |
|---|---|
| Person-to-person transfer, any amount | None |
| Merchant payment of ₹2,000 or less | None |
| Small merchants (P2PM) receiving up to ₹1 lakh a month on UPI QR | None |
| UPI AutoPay recurring payments | None |
| Eligible merchant payment above ₹2,000 | 0.4%, capped at ₹300 |
| Specified railway, fuel, insurance, telecom and agricultural payments above ₹2,000 | Flat ₹5 |
The start date has not been announced. NPCI deferred the original 15 October 2026 date for the festive season, and reports differ on whether it will start soon after Diwali or later. Our detailed post on UPI MDR charges for merchants covers the rates and examples.
What about "pay by UPI, add 2%" signs?
A sign or bill line that adds a fee only because the customer pays by UPI is exactly the kind of pass-through NPCI says is not allowed. Banks are expected to stop merchants from doing this, and the merchant's acquiring bank or payment provider can act under its merchant agreement. If you see such a charge as a customer, you can raise it with the merchant's bank or payment provider, or through the complaint option in your UPI app.
What a business can still do is set its own prices. Business Today notes that retailers may adjust prices or discounts to absorb costs. That is a pricing decision for all customers, not a charge for choosing UPI.
How MDR will reach the merchant, with examples
MDR is not collected at the counter. The customer pays the full bill amount, and the merchant's bank or payment provider deducts MDR when it settles the money to the merchant. Using the rates reported by Business Today:
- A ₹1,500 bill paid by UPI: no MDR, since it is ₹2,000 or less.
- A ₹5,000 bill: MDR of ₹20 for the merchant. The customer still pays ₹5,000.
- A ₹10,000 bill: MDR of ₹40.
- A ₹50,000 bill: MDR of ₹200.
- A bill of ₹75,000 or more: MDR stops at the ₹300 cap.
So the correct customer bill shows only the price of goods or services and GST, where applicable. The MDR shows up later, in the merchant's settlement statement, as a cost of accepting payments. Your accountant treats it like any other bank or payment gateway charge.
Support for small merchants
According to the MediaNama report on NPCI's affidavit, NPCI will also fund an adoption programme for merchants with annual turnover up to ₹20 lakh, using 5% of each participant's MDR share. Details of how a shop can benefit had not been published at the time of writing. If your turnover is in this range, ask your bank or payment provider about it once the charge starts.
Checklist for shop owners and online sellers
- Remove any "UPI charges" or payment-method fee from bills, POS settings, checkout pages and counter signs.
- Check whether you are exempt. If you receive up to ₹1 lakh a month on UPI QR, ask your bank or provider to confirm your small-merchant status.
- Estimate your cost. Look at last month's UPI receipts above ₹2,000. At 0.4% (capped at ₹300), work out what MDR would have been. For most small shops this is a small number.
- Read your settlement reports once the charge starts, so you can match MDR deductions to transactions.
- Price for all customers. If margins are tight on large tickets, review your prices or discounts, not a UPI-only fee.
For software and payment app builders
- Do not build a "UPI surcharge" or "platform fee on UPI" into checkout flows.
- Show MDR as a deduction in merchant settlement reports, not as a customer charge.
- Keep the ₹2,000 threshold, the ₹300 cap and category rates configurable, since the start date and details may still change.
- Recurring payments under UPI AutoPay are exempt, which matters for subscription products. See our guide to RBI e-mandate rules.
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