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Who Pays UPI MDR: Buyers or Small Merchants?

UPI MDR rules: buyers pay no MDR, while small merchants using personal QR up to ₹1 lakh/month also pay 0% from 15 Oct 2026.

India — 17 September 2026. Effective from 15 October 2026 under Finance Ministry Gazette S.O. 5075(E) dated 14 September 2026 and NPCI circular + 35-question FAQ dated 15 September 2026.

A new UPI fee is coming, but it is not on your phone. It sits between the merchant's bank and the merchant.

Quick Answer

Buyers pay nothing. Consumers do not pay MDR on any UPI payment, at any amount.
Small merchants pay nothing. Shops accepting UPI through a personal QR (P2PM) with up to Rs 1 lakh in monthly receipts pay 0% MDR on all amounts.
Other merchants pay MDR only on person-to-merchant payments above Rs 2,000. They are legally prohibited from adding the fee to the buyer's bill.

The Core Rule in One Table

Payer / Receiver	Transaction type	Amount	MDR from 15 Oct 2026	Who bears it?
Buyer → Merchant (P2M)	Standard merchant QR	Up to Rs 2,000	0%	No charge to either side
Buyer → Merchant (P2M)	Standard merchant QR	Above Rs 2,000	0.4% capped at Rs 300	Merchant / acquirer, not buyer
Buyer → Merchant (P2M)	Small merchant — personal QR (P2PM)	Up to Rs 1 lakh / month	0%	No charge
Person → Person (P2P)	Any P2P transfer	Any amount	0%	No charge
Concessional categories*	P2M above Rs 2,000	Above Rs 2,000	Flat Rs 5	Merchant
Capital markets**	P2M above Rs 2,000	Above Rs 2,000	0.02% capped at Rs 300	Merchant

\ Railways, telecom, insurance, fuel, utilities, education, agriculture inputs. \* Mutual funds, securities, brokers.

How the Money Actually Moves

MDR is deducted before the merchant gets paid, not added to the buyer's bill. When a buyer pays Rs 5,000 via UPI at a standard merchant QR, the buyer's account is debited exactly Rs 5,000. The acquiring bank or payment aggregator then deducts the MDR — Rs 20 in this case — and credits the merchant Rs 4,980.

That Rs 20 is split across the payments chain: the buyer's bank (issuer), the merchant's bank or aggregator (acquirer), the payment apps involved, and NPCI's network costs. The buyer never sees any of this. There is no MDR line item at checkout, no UPI platform fee, and the debited amount on the bank statement is exactly the bill — whether it is Rs 1,500 or Rs 50,000.

The 0.4% applies on the full transaction value, not just the amount above Rs 2,000. A Rs 2,500 bill attracts Rs 10, not 0.4% of Rs 500.

Who Is a "Small Merchant"?

A merchant accepting UPI through a personal QR (P2PM), not a merchant-grade QR.
Total UPI receipts of up to Rs 1 lakh in a month through that QR.
Qualifies for 0% MDR on all amounts, even individual payments above Rs 2,000.
QRs in rural and semi-urban areas carry a blanket exemption regardless of volume.

Above Rs 1 lakh per month via a personal QR, the account is expected to be reclassified as a merchant account and standard rules apply. Small merchants near that threshold should check with their bank whether their QR is personal or merchant-grade, since the classification decides the treatment.

Why the Government Did This

UPI P2M traffic costs the ecosystem an estimated Rs 20,000 crore a year to run — switching, settlement, fraud management, and dispute handling across banks, apps, and NPCI. The government's direct subsidy for FY26-27 is around Rs 2,000 crore, roughly a tenth of that cost. The MDR framework is presented as closing that gap through merchant-side pricing rather than taxpayer subsidy.

Only about 4% of P2M transactions by count sit above Rs 2,000, so the paying base is narrow by design. Government sources told PTI on 16–17 September that there will be no rethink or rollback.

For context, the new UPI rates remain well below card rails: credit-card MDR runs 1.5–2.5%, debit up to 0.90%.

What Merchants Will See

Standard merchants: 0.4% on the full transaction value, capped at Rs 300 (the cap binds at Rs 75,000 and above).
Rs 2,500 bill → Rs 10 MDR.
Rs 50,000 bill → Rs 200 MDR.
Rs 1,00,000 bill → Rs 300 MDR (cap hits).
Concessional merchants: flat Rs 5 per transaction above Rs 2,000, regardless of value.
Rs 3,000 electricity bill → Rs 5 MDR.
Rs 80,000 insurance premium → Rs 5 MDR.
Capital-markets merchants: 0.02% capped at Rs 300.
Rs 10,000 mutual fund payment → Rs 2 MDR.
Rs 20 lakh securities payment → Rs 300 MDR.
No MDR on payments of Rs 2,000 or less in any merchant category.

Larger merchants should ask their acquiring bank for settlement reports that show MDR deductions separately, so the fee can be reconciled rather than discovered as a shortfall.

P2M vs P2P: Why It Matters

P2M (person-to-merchant): paying a business via a merchant QR or checkout. MDR can apply above Rs 2,000.
P2P (person-to-person): sending money to family, friends, or any personal UPI ID. Never under this MDR.

Scanning a shop's QR is P2M. Sending money to a friend's number is P2P. Splitting a Rs 6,000 dinner bill by collecting shares to a personal ID stays P2P and free; paying the restaurant's merchant QR directly is P2M and falls under the rules above.

Common Confusions — Cleared

"Will groceries above Rs 2,000 cost me more?" No. You pay the MRP. The merchant absorbs the MDR and cannot add it to your bill.
"Will my tea stall charge extra?" No. Small merchants on personal QRs up to Rs 1 lakh a month are fully exempt.
"Will UPI apps add a platform fee?" No. The framework prohibits UPI platform fees for consumers.
"Does MDR apply on ten small payments vs one large?" MDR is per transaction. Ten payments of Rs 1,500 attract 0% each. One payment of Rs 15,000 attracts 0.4% to the merchant.
"Can the merchant refuse UPI for large bills?" A merchant can choose which payment modes to accept, but one who accepts UPI cannot surcharge it. If a merchant demands extra for "UPI charges," that violates the framework — raise it with the merchant's bank or through NPCI's grievance channel.

Timeline

August 2026: Taxation and Other Laws Amendment Bill passed in the Monsoon Session, amending Section 10A of the PSS Act to enable the framework.
14 Sep 2026: Finance Ministry Gazette S.O. 5075(E) notified.
15 Sep 2026: NPCI circular and 35-question FAQ released.
15 Oct 2026: MDR provisions take effect.

Sources

Finance Ministry, Department of Financial Services — Gazette Notification S.O. 5075(E) dated 14 September 2026 — egazette.gov.in
NPCI circular and 35-question FAQ on Merchant Discount Rate (MDR) on Select UPI P2M Transactions dated 15 September 2026 — FAQ mirror: https://financialservices.gov.in/sites/default/files/2026-09/FAQs---Merchant-Discount-Rate--MDR--on-Select-UPI--P2M--Transactions_0.pdf
NPCI — UPI Product Overview (P2M vs P2P)
NPCI — UPI FAQs
Department of Financial Services — Official Website

Disclaimer

This article is for general educational awareness only and does not constitute investment, tax, legal, or financial advice. Market-linked products are subject to risk, and past performance does not guarantee future results. Product eligibility, costs, liquidity, taxation, and terms can change. Review the latest official product documents and consider a suitably qualified professional if you need advice for your circumstances.