From 15 October 2026, a shop taking ₹2,001 on UPI receives less than a shop taking ₹2,000. Seven rupees less, for one rupee more on the bill.
NPCI notified the new merchant discount rate framework on 15 September 2026, and it applies to some person-to-merchant payments only. Consumers pay nothing. Money you send to a friend, a relative, or your own second account is still free at any amount.
Table of contents
- What changes on 15 October
- Rates by category
- The ₹2,001 to ₹2,008 band
- Same takings, different fees
- Exemptions and the three-month rule
- Special sectors at a flat ₹5
- Payments outside the framework
- Arguments for and against
- Education fees and GST are unconfirmed
- FAQ
- Sources
What changes on 15 October
Customers are not charged anything, and UPI apps are not permitted to add a platform fee to a payment. Person-to-person transfers stay free regardless of size. What changes is that on certain merchant payments above ₹2,000, the merchant's bank or payment provider deducts a fee before settling the money, the way card acceptance has always worked.
Merchants cannot pass that fee on to the customer. The posted price is what the customer pays, so a shop cannot legitimately add 0.4% at the counter for paying by UPI.
By NPCI's own count, payments up to ₹2,000 are more than 95% of P2M volume. The fee touches a small slice of transactions and a much larger slice of value. For scale, UPI carried 2,451 crore transactions worth ₹29.9 lakh crore in August 2026.
Rates by category
| Category | Up to ₹2,000 | Above ₹2,000 | Maximum per transaction |
|---|---|---|---|
| Standard merchant (P2M) | ₹0 | 0.4% of the full amount | ₹300, from ₹75,000 |
| Confirmed special sectors | ₹0 | Flat ₹5 | flat fee, no percentage |
| Capital markets | ₹0 | 0.02% | ₹300, reached near ₹15,00,000 |
| P2PM small merchant | ₹0 | ₹0 while classified | not applicable |
NPCI's worked examples: a ₹3,000 payment costs ₹12, ₹50,000 costs ₹200, and ₹1,00,000 costs ₹300 rather than ₹400, because the ceiling has already bound by then.
The ₹2,001 to ₹2,008 band
Once a payment crosses ₹2,000, the 0.4% applies to the entire amount, not to the part above ₹2,000. People misread this more than anything else in the framework. So ₹3,000 costs ₹12, not ₹4. It also creates a short band where charging more leaves you with less.
At ₹2,000 the fee is zero and you keep ₹2,000. At ₹2,001 the fee is 0.4% of ₹2,001, which is ₹8.00, so you keep ₹1,993.
Break-even is 2000 / (1 - 0.004), or ₹2,008.03. ₹2,009 is the first whole rupee that clearly beats a flat ₹2,000 payment, and anything you price between ₹2,001 and ₹2,008 nets you less than ₹2,000 would have.
A merchant who sets their own prices should look at this. A ₹1,999 tag settles higher than a ₹2,005 tag. To check your own price points, the UPI MDR Calculator works out the fee and the net settlement per transaction, entirely in your browser.
Same takings, different fees
The ₹300 ceiling is per transaction, so two merchants collecting identical monthly totals can pay very different fees.
Fifty payments of ₹3,000 collect ₹1,50,000 and cost ₹600. A single payment of ₹1,50,000 collects the same and costs ₹300. The revenue is identical and the fee doubles, purely because of how the money arrived.
Above ₹75,000 the fee stops climbing, so the effective rate falls: 0.4% at ₹50,000, 0.3% at ₹1,00,000, 0.2% at ₹1,50,000. High-ticket sellers land at a lower effective percentage than mid-ticket ones, while a business built on ₹3,000 to ₹10,000 invoices pays the full 0.4% with no relief from the cap.
Exemptions and the three-month rule
P2PM merchants keep zero MDR. Broadly, that covers merchants receiving up to ₹1 lakh a month through qualifying UPI QR arrangements. GST registration is not a condition.
The exemption follows the account, not the transaction. A ₹5,000 payment to a P2PM merchant is still free, because the classification decides, not the size of the individual payment.
Crossing ₹1 lakh in inward credit for three consecutive months can move a merchant from P2PM to P2M, and the standard rates then apply. One busy month does not do it.
The acquiring bank decides whether a particular account is classified P2PM, not the framework text. If it affects your margins, ask your provider.
NPCI has also proposed a dedicated fund for small-merchant onboarding in tier 3 to tier 6 centres, with the framework to be finalised with the RBI within three months.
Special sectors at a flat ₹5
Some categories pay a flat ₹5 above ₹2,000 instead of a percentage. No cap is needed because the fee never grows. The FAQ names railways, telecom services, insurance, fuel, and qualifying public utilities, which include electricity distribution, municipal water, and piped natural gas.
At size the flat fee changes the arithmetic completely. On a ₹40,000 payment the standard rate would be ₹160, while the flat fee is ₹5, an effective rate of 0.0125%.
Capital markets get their own line: mutual funds, securities, stockbrokers, dealers, and SEBI-registered platforms pay 0.02%, with the same ₹300 maximum. The ceiling only binds around ₹15,00,000 at that rate, so most retail investment payments sit well below it.
Payments outside the framework
RuPay credit cards on UPI and pre-sanctioned credit lines follow credit-product rules rather than these. UPI mandates and AutoPay carry no prescribed MDR here. If your collections run mostly through AutoPay, or mostly through credit on UPI, this framework will not tell you what they cost.
Arguments for and against
Arithmetic does not settle either side.
The stated case for the change is cost recovery. The FAQ estimates that running UPI costs around ₹20,000 crore a year. Under zero MDR that cost sat with banks and payment companies, with government subsidy covering part of it as bridge funding rather than as a permanent arrangement. On that reading, a charge on the larger-value end funds the rails that carry everything else.
The objection is about behaviour at the thin end. Any fee on digital acceptance gives a low-margin merchant a reason to prefer cash, and 0.4% on a ₹10,000 sale is ₹40 out of a margin that may be small. There is also a durability question. A ₹1 lakh exemption threshold and a ₹2,000 free limit can be revised later, and merchants planning around them are planning around a current setting, not a guarantee.
What happens next is not something I can tell you. The rates above are what is published.
Education fees and GST are unconfirmed
Two things are open, and I would rather leave the gaps than guess.
The FAQ places education fee collection in the industry programme category and says it benefits from flat-fee structures or capped processing rates, but it publishes no figure. Anyone quoting an exact rate for school or college fees is going beyond the document. Confirm it with the acquiring bank or the current NPCI or DFS circular.
The FAQ also never mentions GST. Ordinary acquirer practice would be 18% on the fee itself, not on the customer's payment, so on a ₹12 fee that would be about ₹2.16. Treat that as an estimate of normal practice, not part of the published rate. Input tax credit eligibility depends on registration, a valid tax invoice, and business use. With GST included, the break-even band widens slightly and ends at ₹2,009.48 instead of ₹2,008.03.
FAQ
Will customers be charged for paying by UPI?
No. Consumers pay nothing under this framework, and UPI apps are not permitted to charge a platform fee on a payment. The fee is deducted on the merchant's side before settlement.
What is the most a single transaction can cost?
₹300 for standard merchants, and the ceiling binds from ₹75,000. Above that the fee stops rising, so the effective percentage falls as the ticket grows.
I receive about ₹80,000 a month through my QR code. Do I pay?
Not while your provider classifies you as a P2PM small merchant. The rate is zero, even on individual payments above ₹2,000. Classification is your acquiring bank's call, so confirm it with them rather than assuming.
Does GST apply on top of the fee?
The NPCI FAQ does not address GST. Standard acquirer practice would add 18% on the fee, not on the payment, but that is not a published part of this framework.
Sources
- NPCI notifies MDR of 0.4% on P2M UPI transactions above ₹2,000, effective 15 October 2026, capped at ₹300 from ₹75,000; P2P remains free, Times of India, 15 September 2026.
- Flat ₹5 charge for utility payments, fuel, insurance premiums, rail tickets and several government services, Times of India, 16 September 2026.
- NPCI circular of 15 September 2026: most merchants pay 0.4% on UPI receipts above ₹2,000; small merchants and P2P transfers exempt, The Hindu, 16 September 2026.
- Who pays and who remains exempt; a merchant pays ₹40 on a ₹10,000 UPI receipt, Indian Express, 16 September 2026.
- RBI backs the 0.4% MDR as supporting UPI's long-term sustainability, Times of India, 16 September 2026.
- Rate structure, the P2PM ₹1 lakh monthly threshold and three-consecutive-month reclassification, capital-market 0.02%, the bar on passing MDR to customers, and the worked examples (₹3,000 → ₹12, ₹50,000 → ₹200, ₹1,00,000 → ₹300) are taken from NPCI's FAQ "Merchant Discount Rate (MDR) on Select UPI (P2M) Transactions", 15 September 2026.
- The ₹2,008.03 break-even, the ₹2,009.48 GST-inclusive figure, the effective-rate series above ₹75,000, and the fifty-payments comparison were computed from the published rates and are covered by 102 unit assertions in the calculator's test suite.
