Who Is Affected by UPI MDR? Impact on Merchants, Fintechs, and Banks

Last updated: 20 September 2026

⚠️ Disclaimer: This page is for informational purposes only and does not constitute financial or legal advice. MDR rates are subject to change. Always verify with your acquiring bank or payment service provider.
Note: This page includes only confirmed facts from official sources. Speculative economic analysis has been excluded. Unverified claims are clearly marked.

Who Directly Pays UPI MDR?

Merchants (businesses) pay UPI MDR — specifically those receiving UPI P2M payments above ₹2,000. The MDR is automatically deducted by the acquiring bank before settling funds to the merchant's account.

Customers do not pay MDR. Banks have been advised that merchants must not pass MDR on to customers as a surcharge.

According to official Ministry of Finance data, about 96% of person-to-merchant (P2M) transactions remain completely free of MDR due to the ₹2,000 ticket threshold and small-merchant exemptions.

Which Merchants Are Affected Most?

Impact depends on transaction profile:

Merchant TypeTypical Ticket SizeMDR Impact
Tea stall, auto-rickshaw, vegetable vendorBelow ₹200Zero — below threshold
Kirana store / grocery (small)₹200–₹1,000Zero — below threshold or small merchant exemption
Fuel station₹500–₹5,000₹5 flat per transaction above ₹2,000
Mid-size retailer (clothing, electronics)₹2,000–₹50,0000.4% per transaction above ₹2,000
Restaurant / café₹200–₹3,000Mixed — zero up to ₹2,000; 0.4% above ₹2,000
Travel / tour booking₹5,000–₹1,00,0000.4% up to ₹300 cap
Stockbroker / mutual fundVaries widely0.02% (capped at ₹300, on txns > ₹2,000)
Insurance premium₹2,000–₹50,000₹5 flat on txns > ₹2,000

Who Is NOT Affected by UPI MDR?

  • Consumers: All UPI payments remain free for the payer
  • Small merchants (P2PM): Receiving ≤ ₹1 lakh/month via QR code — fully exempt
  • Everyday micro-payments: Transactions at or below ₹2,000 are zero MDR
  • UPI P2P transfers: Friend/family transfers always free
  • RuPay debit card users and merchants: Zero MDR maintained (Payment & Settlement Systems Act §10A; PIB 19 Mar 2025)
  • UPI AutoPay subscribers: Mandates (SIPs, recurring bills) are reported exempt under an NPCI clarification (unverified; not in PIB release)

How Does MDR Affect Banks and Payment Apps?

Banks and Payment Service Providers (PSPs/TPAPs) operate within the NPCI interchange and fee-sharing guidelines. Under the official MDR framework announced by the Ministry of Finance:

  • Acquiring banks: Receive an MDR component for merchant onboarding, terminal/QR infrastructure, and settlement risk.
  • Issuing banks: Receive interchange fees for account maintenance, authentication, and processing the debit transaction.
  • Payment networks (NPCI): Receive switching and network fees to operate the core UPI switch. MDR is not collected as a tax or retained by the government or NPCI.
  • Third-Party App Providers (TPAPs like PhonePe, Google Pay, Paytm): Sourced through commercial revenue-sharing with sponsor and acquiring banks under NPCI operating guidelines. TPAPs are advised not to charge platform fees to individual retail consumers.

Official Source: Ministry of Finance release of 15 September 2026 (PIB)

During the zero-MDR period (2020–2026), banks absorbed these operational costs. The revised MDR framework restores a sustainable revenue stream to the banking and NPCI network.

5% Dedicated Fund for Small Merchants

Under the 15 September 2026 announcement, 5% of total MDR collections will be allocated to a dedicated fund for small merchant enablement. This fund provides micro-merchants with QR equipment support, technology assistance, and cybersecurity infrastructure.

Official Source: Ministry of Finance release of 15 September 2026 (PIB)

Capital Market Impact (Stocks, Mutual Funds)

UPI payments to capital market intermediaries (stockbrokers, mutual fund platforms, DP accounts) attract a concessional rate of 0.02% MDR, capped at ₹300 per transaction above ₹2,000. Transactions at or below ₹2,000 attract ₹0 MDR.

Official Source: Ministry of Finance release of 15 September 2026 (PIB)

AutoPay Mandates: Recurring SIPs and mutual fund mandates are reported exempt under an NPCI clarification of 17 Sep 2026 (unverified; not in PIB release).

Agricultural and Rural Impact

Agriculture input purchases are included in the concessional ₹5 flat-fee category (above ₹2,000 threshold), protecting farmers who make large input purchases (seeds, fertilizers) via UPI. The small merchant exemption (P2PM ≤ ₹1 lakh/month) also covers village-level entrepreneurs (VLEs) and local rural stores.

Official Source: Ministry of Finance release of 15 September 2026 (PIB)

UPI MDR Impact — FAQs

Who is affected by the new UPI MDR rules?
Mid-to-large merchants, retailers, and online businesses accepting UPI payments exceeding ₹2,000 are affected. Consumers and peer-to-peer (P2P) transfers between friends and family are 100% unaffected and remain completely free. Additionally, small merchants receiving ₹1 lakh or less per month via QR codes and all transactions of ₹2,000 or below are fully exempt from MDR, which represents about 96% of person-to-merchant (P2M) transactions.
How will UPI MDR impact merchants?
Merchants processing P2M transactions over ₹2,000 will have an MDR of 0.4% (capped at ₹300) or a flat ₹5 fee (for essential categories like fuel, telecom, rail, insurance, and agricultural inputs) deducted from settlements by their acquiring bank. GST applicability on UPI MDR is not confirmed; check with your bank. If your bank charges GST, it is 18% of the MDR amount, not of the transaction value. Merchants cannot legally pass on this fee as a customer surcharge.
How will UPI MDR affect banks and fintech companies?
The new rules restore sustainable unit economics for acquiring banks, issuing banks, and fintech platforms that have absorbed UPI infrastructure and cybersecurity costs since 2020. Acquirers earn revenue for managing merchant QR codes; issuers receive interchange fees for transaction processing; and fintech apps like Google Pay and PhonePe participate via commercial revenue-sharing arrangements with sponsor banks.
How will the new UPI MDR rules affect small merchants?
Small merchants are protected by comprehensive safety nets: micro-merchants collecting up to ₹1 lakh per month via QR codes are 100% exempt from MDR, and all transactions of ₹2,000 or less carry zero MDR. Furthermore, 5% of total nationwide MDR collections will fund a dedicated Small Merchant Enablement Fund to provide free QR stands, soundbox devices, and technology support.
Who pays UPI MDR and who receives the MDR charges?
The merchant pays the UPI MDR; it is automatically deducted from gross transaction receipts by the acquiring bank prior to settlement. The collected MDR is distributed among ecosystem participants: acquiring banks/fintech aggregators, the customer's issuing bank (as interchange), and NPCI (as network switching fees). MDR is not a government tax and is not collected by the government.
Is MDR applicable on UPI transactions?
Yes, starting 15 October 2026, MDR is applicable on standard person-to-merchant (P2M) transactions above ₹2,000 at 0.4% (capped at ₹300). However, all P2P personal transfers, transactions up to ₹2,000, small QR merchants (≤ ₹1 lakh/month), and RuPay debit card payments remain strictly at 0% MDR (confirmed under PSS Act Section 10A / PIB 19 Mar 2025).
How does the fee on transactions exceeding ₹2,000 impact merchant settlements?
For P2M transactions exceeding ₹2,000, standard merchants pay 0.4% MDR (maximum cap ₹300). Essential service categories (fuel, telecom, railways, insurance, agri-inputs) pay a concessional flat fee of ₹5. Capital markets pay 0.02% (capped at ₹300). Customers pay ₹0 extra for all transactions. GST applicability on UPI MDR is not confirmed; check with your bank. If your bank charges GST, it is 18% of the MDR amount, not of the transaction value.
What is Zero MDR in UPI?
Zero MDR is the policy introduced in January 2020 under Section 10A of the Payment and Settlement Systems Act, 2007 and Section 269SU of the Income-tax Act, 1961 that eliminated merchant discount fees on RuPay debit card and UPI payments (confirmed in Ministry of Finance release of 19 March 2025 (PIB)). Under the 2026 framework, Zero MDR continues to apply to transactions up to ₹2,000, small QR merchants, and RuPay debit card payments.
What are the new UPI transaction rules for 2026?
Effective 15 October 2026, the Ministry of Finance release of 15 September 2026 (PIB) established: 0.4% MDR on standard P2M transactions > ₹2,000 (capped at ₹300); zero MDR on transactions ≤ ₹2,000; flat ₹5 fee for essential services; full exemption for small QR merchants (≤ ₹1 lakh/month); zero fees for consumers; and a 5% allocation toward a Small Merchant Enablement Fund.
Can I transfer ₹2 lakh through UPI?
Yes. Standard person-to-person (P2P) UPI transfers allow up to ₹1 lakh per transaction or per day, while specific categories such as capital markets, collections, travel, and insurance allow up to ₹2 lakh per transaction. Payments to educational institutions and healthcare providers have an enhanced limit of up to ₹5 lakh per transaction. None of these consumer transfers incur any MDR charge.

📑 Sources & Regulatory References

Last updated: 20 September 2026. Independent informational guide based on published government and regulatory notifications.