1. Basics & Regulatory Framework
MDR stands for Merchant Discount Rate. It is the percentage or flat fee charged to a merchant by payment aggregators and banks for processing a customer's electronic payment. On UPI, MDR compensates the customer's issuing bank, the acquiring bank, payment gateways, and NPCI for running the secure real-time payment network.
Yes, 100% free. Normal consumers using UPI to send money to friends and family (P2P) or to pay merchants (P2M) from their savings bank accounts pay zero fees. Any fee that exists in the ecosystem is strictly an interchange/MDR fee absorbed by the merchant or funded through government digital payment promotion subsidies.
Section 10A of the Payment and Settlement Systems Act, 2007 (introduced via the Finance Act 2019) mandates that no bank or payment system provider shall impose any charge on any person undertaking all electronic modes of payment specified under Section 269SU of the Income Tax Act (which included RuPay debit cards and BHIM-UPI). To offset costs for banks, the Ministry of Electronics and Information Technology (MeitY) and the Ministry of Finance provide an annual incentive subsidy scheme for low-value UPI transactions.
2. Thresholds, Caps & Rates
Transactions of ₹2,000 or below make up over 75% of all retail merchant UPI volume in India. To protect micro and small retailers, kirana shops, and everyday commerce, regulators established the ₹2,000 threshold where 0% Zero MDR applies unconditionally across all merchant segments.
For transactions above ₹2,000, MDR is calculated on the entire transaction value (not just the amount above ₹2,000). For example, at 0.40%, a ₹2,001 payment would incur approximately ₹8.00 in MDR.
Under standard merchant rules, UPI MDR is strictly capped at ₹300 per transaction. This cap is reached at an order value of ₹75,000 (since ₹75,000 × 0.40% = ₹300). Any transaction above ₹75,000 — whether ₹1 Lakh, ₹5 Lakh, or ₹10 Lakh — has its base MDR fixed at exactly ₹300.
3. Surcharges & Merchant Rights
No. Surcharging is strictly illegal. Under RBI directives, NPCI circulars, and consumer protection guidelines, merchants are strictly prohibited from adding a convenience fee or passing on MDR to the buyer. The customer must only pay the exact printed price / invoice value.
You can report the violation to the acquiring bank or payment app displaying the QR code (e.g. PhonePe, Google Pay, Paytm, BharatPe) or file a complaint with the RBI Integrated Ombudsman (cms.rbi.org.in) or National Consumer Helpline (1915).
4. Special Payment Types: PPI Wallets & RuPay Credit Cards
No. The 1.1% interchange fee introduced by NPCI applies only when a customer uses a prepaid wallet (like Paytm Wallet, PhonePe Wallet, or Sodexo card) to scan a merchant UPI QR code for an amount exceeding ₹2,000. It does NOT apply when paying directly from a savings or current bank account via UPI PIN.
For small merchants with turnover up to ₹20 Lakh, RuPay credit card on UPI transactions up to ₹2,000 are zero-MDR. For transactions above ₹2,000 at standard merchants, MDR of up to 2.0% applies, shared between issuer bank, acquiring bank, and NPCI.
5. GST & Settlement Questions
No. In payment processing, GST at 18% is applied only to the service fee (MDR), because MDR is a payment processing service supplied by the acquirer to the merchant. For example, on ₹10,000 with ₹40 MDR, the GST is ₹7.20 (18% of ₹40). GST is never added to the customer's transaction amount at the payment processing level.
T+1 means "Transaction day plus 1 business day". If a customer pays you on Monday at 3:00 PM, the funds (minus MDR and GST deductions) are automatically transferred to your registered bank account by Tuesday morning. Weekend and bank holiday transactions are settled on the next banking working day.