Updated 3 November 2026. This is a plain-language summary for business owners, not financial or legal advice. The start date had not been notified at the time of writing, so confirm the final rules with your bank or payment provider.
Short answer: under the new framework, a merchant receiving a UPI payment of more than ₹2,000 pays a merchant discount rate (MDR) of 0.4% of the payment, capped at ₹300 per transaction. Some essential categories pay a flat ₹5 instead. Person-to-person transfers, merchant payments of ₹2,000 or less, and small merchants receiving up to ₹1 lakh a month on UPI QR stay free. NPCI deferred the 15 October start and said the charge will begin "immediately post Diwali" on a date to be notified.
What MDR is and why it matters now
MDR is the fee a merchant pays on each digital payment it receives. For cards, businesses have paid it for years. For bank-account UPI payments, MDR has been zero since January 2020, which is a big reason so many shops, clinics and service businesses moved to UPI QR codes.
That changes with the new framework. As reported by CIOL, the Ministry of Finance set the framework in a 15 September notification. The rollout was due on 15 October 2026, but on 13 October NPCI's UPI and Services Steering Committee deferred it because of the festive season. Business Standard reported that the structure itself was not changed. Diwali falls on 8 November this year, so the charge could start within days of that, once the date is notified.
UPI MDR rates at a glance
Based on the structure reported by CIOL and summarised by Cashfree:
| Payment type | MDR |
|---|---|
| Person-to-person (P2P) transfer, any amount | Free |
| Merchant (P2M) payment of ₹2,000 or less | Free |
| Small merchant (P2PM) on UPI QR, receipts up to ₹1 lakh a month | Free |
| Merchant payment above ₹2,000 | 0.4% of the payment, capped at ₹300 |
| Specified essential categories above ₹2,000 (such as railways, telecom, insurance, fuel and agricultural inputs) | Flat ₹5 |
| Capital market payments (mutual funds, securities) | 0.02%, capped at ₹300 |
The government has said that around 96% of merchant transactions will not be affected, because most UPI payments to shops are small. The cost lands mainly on businesses with high-value tickets.
Worked examples
- ₹1,800 grocery bill: ₹0. It is under the ₹2,000 threshold.
- ₹10,000 mobile phone accessory order: 0.4% = ₹40.
- ₹50,000 furniture advance: 0.4% = ₹200.
- ₹2,50,000 jewellery purchase: 0.4% would be ₹1,000, but the cap limits it to ₹300. The cap is reached at ₹75,000.
For a business that collects ₹20 lakh a month through UPI in tickets of ₹5,000 to ₹50,000, the new cost is roughly ₹8,000 a month. That is real money for a thin-margin retailer, and it is worth planning for now.
Who is exempt
- P2P transfers between individuals, at any amount.
- Merchant payments of ₹2,000 or less.
- Small merchants in the P2PM category (for example street vendors) receiving up to ₹1 lakh a month through UPI QR. Cashfree notes that a merchant above that limit for three months in a row can be moved to the standard merchant category.
- SIPs and qualifying recurring mandates were not given a new MDR under the announced framework, according to Cashfree's summary.
Note that a business account set up as a regular merchant does not become exempt just because a single payment is small. The threshold works per transaction, and the P2PM exemption depends on how your bank or app has categorised you.
Can you pass the charge to customers?
As reported by CIOL, banks must make sure merchants do not pass MDR on to customers, and UPI apps cannot add platform fees or hidden charges for users. So a "2% extra on UPI" note at the counter is a bad idea. The cleaner route is to treat MDR like any other payment cost and factor it into pricing and margins.
What merchants should do before the start date
- Ask your bank or payment provider which category your UPI ID or QR falls under (P2PM, standard P2M or a ₹5 flat category), and from which date MDR will be deducted.
- Check how it will show up. Find out whether MDR will be deducted from each settlement or billed monthly, and whether GST is added on the fee in the invoice your provider sends. Ask your CA how to book it.
- Look at your ticket sizes. Pull last month's UPI receipts and count how many were above ₹2,000. That gives you a quick estimate of the monthly cost.
- Offer bank transfer for large B2B invoices. For high-value supplier or project payments, NEFT, RTGS or IMPS to your current account may cost the payer little or nothing and is often already how B2B clients prefer to pay.
- Compare with cards. If you already pay card MDR, UPI at 0.4% with a ₹300 cap may still be cheaper on large tickets. Do not remove UPI out of habit; check the numbers.
- Update your billing software (see the next section).
What to update in billing, POS and accounting software
If your billing software or POS records UPI as "cash-like" money with no fee, your books will stop matching the bank once MDR starts. Check these points:
- Settlement reconciliation: the amount credited to the bank will be the bill amount minus MDR (if deducted at source). Your software should match each bill to its settlement and post the difference to a "payment charges" expense, not leave it as a short receipt.
- Payment mode reports: split UPI into "up to ₹2,000" and "above ₹2,000" so you can see the cost each month.
- Dynamic QR on the invoice: a QR with the exact amount and bill number makes automatic matching far easier than a static shop QR.
- No surcharge lines: remove any "UPI charges" line your staff may be tempted to add, since passing MDR to customers is not allowed.
- Payment links and gateways: if you collect UPI through a payment gateway, the gateway's own pricing still applies on top of, or bundled with, UPI MDR. Read the revised rate card from your provider.
For businesses with large tickets, such as jewellers, pharmacies with wholesale orders, or restaurants with banquet bookings, these changes are worth doing properly. See our guides on jewellery billing software and choosing a restaurant POS for what a modern billing setup should handle.
Why this is happening
UPI is enormous. Business Standard reported a record average of 802 million UPI transactions a day in September 2026, with 24.07 billion transactions worth ₹29.37 trillion in the month. Banks and payment apps carry the cost of running this system, and zero MDR made it hard to fund. The Ministry has said MDR is not a tax and not a government or NPCI charge; it is shared among the banks and payment providers in the chain. Traders' associations opposed the fee, and NPCI said the charges will be reviewed periodically.
How we can help
Nextinera builds and updates custom billing, POS and ERP software for Indian businesses, including UPI dynamic QR, settlement reconciliation and payment-cost reports. If you want your billing ready before MDR starts, book a free call.