What is UPI MDR? (New UPI MDR rules 2026)
UPI MDR stands for Unified Payments Interface Merchant Discount Rate. Following the latest New UPI MDR circular, many users and businesses are searching to understand the UPI charges from October 15, 2026. In simple terms, MDR is a processing fee applied on certain UPI payments made to merchants (Person-to-Merchant or P2M transactions). This fee compensates the payment ecosystem—including the banks, the payment gateways, and the National Payments Corporation of India (NPCI)—for maintaining the secure, real-time UPI infrastructure.
Will UPI be charged? UPI charges for customers
A common question is: Does UPI have transaction fees for normal users? The answer is firmly no. For the vast majority of regular users and customers, UPI remains completely free. There are absolutely zero charges for sending money to friends, family, or paying at local shops using a normal bank account. The charges (MDR) apply strictly to business transactions on the merchant's side, and even then, many merchant transactions remain free under government rules.
Who pays UPI MDR? Does the customer pay?
The merchant pays the UPI MDR. The customer NEVER pays this fee directly on top of their bill. For instance, if a customer buys an item for ₹5,000, they scan the QR code and pay exactly ₹5,000. The merchant's acquiring bank deducts the MDR from the ₹5,000 before settling the final amount into the merchant's bank account.
What happens above the UPI ₹2000 limit?
The UPI 2000 limit is critical in understanding the MDR on UPI impact on merchants:
- Transactions up to ₹2,000: The MDR is generally ₹0 (Zero) for standard merchants. The merchant receives the full amount.
- Transactions above ₹2,000: For standard merchant categories, a nominal MDR (0.4%, capped at ₹300) applies. Note that there are also Flat 5 rupee MDR sectors (like railways, telecommunications, insurance, fuel, and agriculture) for transactions above ₹2,000.
You can use our UPI MDR Calculator to see the exact deduction based on the UPI MDR limit for any amount.
How is UPI MDR calculated?
UPI MDR calculation depends on the transaction amount and the merchant category code (MCC). The general formula for standard retail payments above ₹2,000 is:
MDR = Transaction Amount × Applicable Rate (e.g., 0.4%)
This is usually subject to a maximum cap (e.g., ₹300). For example, a ₹1,00,000 standard transaction at 0.4% would theoretically be ₹400, but due to the ₹300 cap, the merchant only pays ₹300.
Is there GST on UPI MDR?
Yes, 18% GST (Goods and Services Tax) is levied on the MDR fee amount, not on the total transaction amount. So, if the MDR deducted is ₹20, an additional GST of ₹3.60 (18% of ₹20) is charged. The total deduction from the merchant's settlement will be ₹23.60.
Does MDR apply to UPI QR?
Yes, MDR applies to payments made via UPI QR codes, but only for merchant (P2M) QR codes (often called "BharatQR" or "Merchant UPI QR"). However, if the payment is under ₹2,000, there is usually no MDR on these QR codes either.
Is UPI free for P2P?
Yes, completely. Many users ask "Is UPI free for P2P" and the answer is absolutely. P2P (Person-to-Person) and P2PM (Person-to-Small Merchant) transactions do not attract any MDR. If you are sending money to a friend's phone number or paying a small unorganized vendor using their personal UPI ID, there are zero charges regardless of the amount.
Why is UPI MDR being introduced/charged?
As the volume of UPI transactions has skyrocketed to billions of transactions per month, the infrastructure costs for servers, security, dispute resolution, and network maintenance have grown immensely. MDR is necessary to create a sustainable business model for banks and payment apps (like PhonePe, Google Pay, and Paytm) so they can continue offering secure and fast services.