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MDR on UPI: The 0.4% Charge, Deferred Past Diwali 2026

18 September 2026 · Updated 14 October 2026 · 14 min read

See what the 0.4% MDR plus GST costs you on your UPI sales

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For six years, "UPI is free — MDR is zero" was simply true for merchants. That changed on 15 September 2026, when NPCI issued a circular introducing a 0.4% Merchant Discount Rate on UPI person-to-merchant (P2M) payments above ₹2,000, originally effective 15 October 2026 (since deferred, see the 14 October update below). The RBI has publicly backed the move as a step toward a "sustainable UPI ecosystem."

This piece explains the new rule in full — who actually pays it, what stays free, the sector-specific exceptions, and the older, separate charges (RuPay Credit Card on UPI, wallet interchange, aggregator fees) that were already quietly sitting outside "zero MDR" long before this update.

This is informational, not financial or compliance advice. Several implementation details — exactly which merchant categories qualify for concessional rates, how aggregation and refunds are treated — were still being finalised by NPCI/acquiring banks as of this writing. Confirm the specifics with your bank or payment aggregator before the rollout.

Update (14 October 2026): the start has been deferred to after Diwali, date not yet notified

15 October is no longer the start date in the reports, and no new date has been announced. On 13 October The Hindu, Mint, The Economic Times, CNBC-TV18 and BusinessLine all quoted the same NPCI line: the UPI and Services Steering Committee decided the charge will start immediately after Diwali, on a date to be notified. Diwali is reported as 8 November, but that is not a start date, so do not plan around 9 November or any other single day.

What we have not seen: the NPCI statement itself. It was not on the NPCI press release list when we checked on 14 October, so this rests on press reports of it. This replaces our 13 October note that said 15 October still stood. That note went up after these reports had appeared, and it is superseded.

Update (2 October 2026): UPI is working today, but a few traders are still protesting

Dated 2 October. The 15 October date mentioned here has since been deferred, see the 14 October update above.

There is no nationwide UPI shutdown today. UPI is running as normal on NPCI, bank and app networks. The big protest call was withdrawn on 30 September (see below), but trader groups are not all on the same side, so some shops may still ask you to pay cash.

What changed since 30 September: only the protest picture. The 15 October date, the 0.4% rate, the ₹2,000 threshold, the ₹300 cap and the ₹1 lakh/month small-merchant limit are all as before. The calculator still uses these figures.

Update (30 September 2026): the "No UPI Day" protest has been withdrawn

Dated 30 September. The 15 October date mentioned here has since been deferred, see the 14 October update above.

Two of the trade bodies behind the 2 October protest have called it off. The All India Consumer Products Distributors Federation (AICPDF) and the All India Mobile Retailers Association (AIMRA) met Finance Minister Nirmala Sitharaman and withdrew from "No UPI Day". The Minister assured the delegation that their concerns would get due consideration, according to The Federal.

What this means for you: keep planning for 0.4% above ₹2,000 (capped at ₹300), plus 18% GST on that fee, from 15 October. If the rules change, we'll update this post. To see the cost on your own sales, use the UPI MDR calculator.

Update (28 September 2026): the Supreme Court hasn't stopped the 0.4% MDR

Dated 28 September. The 15 October date mentioned here has since been deferred, see the 14 October update above.

The 15 October rollout still goes ahead. On 28 September the Supreme Court refused to put the new MDR on hold. It did agree to hear a challenge to it, and it has asked the government to explain the charge.

What this means for you: nothing changes for now. Four weeks from 28 September is after 15 October, so the MDR will already be in force while the case is heard. Plan for 0.4% above ₹2,000 (capped at ₹300), plus 18% GST on that fee. A later court ruling could change or cancel the charge, and we'll update this post if it does. To see what it costs on your own sales, try the UPI MDR calculator.

Update (28 September 2026): "No UPI Day" on 2 October is a protest, not a shutdown

Superseded on 30 September: AICPDF and AIMRA have since withdrawn the protest call, see above.

UPI is not shutting down on 2 October. Some trade bodies, including the All India Mobile Retailers Association (AIMRA), have asked their members to stop accepting UPI for that one day, in protest against the 0.4% MDR. The Confederation of All India Traders (CAIT) has denied calling or backing any nationwide "No UPI Day".

What MDR actually is

MDR — Merchant Discount Rate — is the fee a merchant pays their bank or payment aggregator every time a customer pays digitally. It's a percentage of the transaction value, deducted before the money is settled to the merchant's account. On a ₹3,000 sale with a 0.4% MDR, for example, the merchant receives ₹2,988; the ₹12 is split between the banks and platforms that moved the money.

The old rule: zero MDR since January 2020

Since 1 January 2020, MDR on UPI P2M transactions and on RuPay debit cards had been set to zero by government mandate, under Section 10A of the Payment and Settlement Systems Act. That mandate is what let UPI displace cards as India's default digital payment method as fast as it did — merchants paid nothing to accept it, unlike the 1–2% they'd pay on a card swipe.

To keep banks and PSPs willing to support that at zero cost to merchants, the government ran a parallel incentive scheme — a small reimbursement to acquiring banks on low-value UPI/RuPay debit volume, funded through the annual Union Budget. That money never reached merchants directly; it compensated banks, and PSPs argued for years it wasn't enough to cover their actual costs. That pressure is the direct backstory to what changed next.

The new rule: 0.4% MDR, now due after Diwali

NPCI's 15 September 2026 circular set a start of 15 October 2026. Reports of 13 October say that start was deferred to immediately after Diwali, with the date to be notified (see the 14 October update above). The terms below are as the circular set them, and the reports do not describe any change to them:

What stays completely free

Sector-specific concessional rates

A few merchant categories get a flat or reduced rate instead of the standard 0.4%, reportedly including:

Exactly which categories qualify and how edge cases (split payments, refunds, transaction aggregation) are handled was still being clarified by NPCI at the time of writing — worth confirming directly with your acquiring bank closer to the rollout date rather than assuming.

The Finance Ministry has put the share of P2M UPI transactions left completely untouched by any of this at roughly 96% — this is a change aimed at higher-value merchant transactions, not everyday small purchases.

What this actually means for common payment types

The rules above sound abstract until you map them onto specific things people actually pay for. The classification hinges on one question every time: is this payment P2P (to another person's account) or P2M (to a registered merchant)? The MDR only ever touches the second — everything else below follows from that one distinction, plus which concessional bucket a merchant falls into.

Always free — P2P, regardless of amount

Free up to ₹2,000, then a flat ₹5 above it (essential-services concession)

Most recharges and monthly bills stay under ₹2,000 anyway, so in practice these usually remain entirely free.

Free up to ₹2,000, then 0.02% capped at ₹300 above it (capital markets)

Free up to ₹2,000, then the standard 0.4% capped at ₹300 above it (default P2M)

This is the largest bucket — anything paid to a registered merchant that doesn't fall into one of the concessional categories above:

Exempt regardless of ticket size, but for a different reason than "small merchant"

Governed by an older, separate charge — not this circular, and not zero either

Not yet clearly confirmed publicly — don't assume, ask directly

A few common payment types weren't clearly addressed in what NPCI/the government had published as of this writing, so treat these as open questions rather than settled facts:

The charges that predate this — and are easy to confuse with it

The 0.4% MDR is new, but it isn't the only place UPI stops being free. These existed before 15 September 2026 and remain separate from the new rule:

RuPay Credit Card linked to UPI

Since 2022, customers can link a RuPay credit card to UPI apps and pay by QR code, same as from a bank account. This was never covered by the zero-MDR mandate — it carries ordinary card economics, currently around 1.95–2% plus 18% GST on transactions above ₹2,000, charged to the merchant. Merchants with annual turnover below ₹20 lakh are exempt from this charge entirely, even on larger transactions.

Notably, RuPay Credit Card–linked UPI and pre-sanctioned credit-line payments are explicitly exempt from the new 0.4% MDR — so these transactions aren't charged twice, but they were never "free" in the first place, and that's the part that surprises merchants: on the customer's screen it looks identical to a zero-cost bank-account UPI payment.

Wallet (PPI) payments routed through UPI

Since April 2023, UPI transactions funded from a Prepaid Payment Instrument — a wallet balance rather than a linked bank account — above ₹2,000 have carried a separate interchange fee of up to 1.1%, borne by the merchant. This is a distinct mechanism from the new 0.4% P2M MDR, set up under NPCI's earlier PPI-interchange framework rather than this month's circular. Whether and how the two now interact for the same transaction is one of the specifics worth confirming with your PSP rather than assuming either way.

Payment aggregator "platform" or "convenience" fees

If you collect UPI payments through an aggregator (Razorpay, Cashfree, PayU, Instamojo, or similar) rather than a raw bank UPI handle, read the fee schedule closely regardless of any of the above. Aggregators can pass through the new 0.4% MDR as-is, or bundle it into a blended service fee with their own markup on top — the two look identical on a settlement statement unless it's itemised. GST at 18% applies on top of any aggregator service fee, since it's a fee for a service, not a bank charge.

Soundboxes, QR stands and instant settlement

Unrelated to MDR entirely, but often confused with "the cost of UPI": the monthly rental for a payment soundbox after any free trial, and the extra fee some aggregators charge for same-day or instant settlement instead of standard T+1. Neither is MDR, but both are real recurring costs tied to accepting UPI.

Quick comparison: what applies where, once the MDR starts

Payment modeMDR/interchange to merchantNotes
UPI, ₹2,000 or below0%Always free, any merchant
UPI, above ₹2,000 (standard)0.4%, capped at ₹300New once the MDR starts (originally 15 Oct 2026)
UPI, above ₹2,000, small P2PM merchant (≤₹1 lakh/month)0%Carved out of the new rule
RuPay debit card0%Unaffected — separate 2020 mandate
RuPay credit card via UPI, above ₹2,000~1.95–2% + GST (0% if turnover < ₹20 lakh)Pre-existing, exempt from the new 0.4% specifically
PPI wallet via UPI, above ₹2,000Interchange up to 1.1%Separate, pre-existing framework since 2023
Railways / telecom / insurance / fuel, above ₹2,000₹5 flatConcessional category
UPI via aggregator dashboard0.4% (or bundled) + possible platform fee + 18% GST on the feeAsk for an itemised schedule

Simplified for comparison — confirm exact figures against your bank's or aggregator's current fee schedule, especially given some details were still being finalised as of publication.

What to check before the MDR starts

  1. Work out whether your typical ticket size crosses ₹2,000. If most of your sales are under that, or you qualify as a small P2PM merchant under ₹1 lakh/month, this change may not touch you at all.
  2. Ask your bank or aggregator for the exact rate that will apply to your account, including whether you fall into a concessional category.
  3. Get the fee schedule in writing, itemising MDR, any aggregator platform fee, and GST separately — don't rely on a single blended "processing fee" line.
  4. Check settlement reports after the start date, once it is notified, not just what was quoted beforehand.
  5. If you take RuPay Credit Card or wallet-funded UPI payments, confirm those rates specifically — they're governed by different, older frameworks than this new one.
  6. Watch for the finalised NPCI circular details on exact merchant-category eligibility, which were still pending clarification as this was written.

Our UPI MDR & GST Calculator runs all of this for a specific transaction — MDR by category, the 18% GST on it, and your actual net settlement — rather than working it out by hand.

The bottom line

UPI's zero-MDR era for merchants ran from January 2020 to October 2026 — real, law-backed, and the reason UPI became the default at Indian tills. Once the deferred start arrives, that changes for transactions above ₹2,000: a 0.4% fee, capped at ₹300, borne by the merchant, with small vendors, low-value sales and P2P transfers carved out. Layer that against the charges that were already quietly sitting outside "zero MDR" — RuPay Credit Card on UPI, wallet interchange, aggregator platform fees — and "UPI is free" stops being a safe blanket assumption for any business doing meaningful transaction volumes. Read your fee schedule like a lease, and re-check it once NPCI notifies the new start date.

Sources

This post is based on NPCI's 15 September 2026 circular and the reporting above. It was first published on 18 September 2026 and last updated on 14 October 2026 with the deferral of the start date to after Diwali, as reported on 13 October. Earlier updates covered BusinessLine's 12 October report, the 2 October "No UPI Day" protest and the 28 September Supreme Court hearing. The rules can still change, whether by an NPCI amendment or a later court order. Check your bank's own notice before you make a decision based on this.

Frequently asked questions

Has the 0.4% UPI MDR start date been postponed?

Yes, according to reports of 13 October 2026. The Hindu, Mint, The Economic Times, CNBC-TV18 and BusinessLine all quote NPCI's UPI and Services Steering Committee as deciding that the charge will be implemented immediately after Diwali, on a date to be notified. 15 October is no longer the date in those reports. We could not find the NPCI statement itself on npci.org.in when we checked, and no new day has been announced.

Was the 15 October UPI MDR cancelled?

No. The reports say the charge was deferred, not withdrawn. The rate, the ₹2,000 threshold, the ₹300 cap and the ₹1 lakh a month small-merchant carve-out are described as unchanged. Only the start day has moved, and the new day has not been notified. Diwali is reported as 8 November, but that is not a start date.

Will customers be charged the UPI MDR?

No. The MDR is a merchant-side cost: 0.4% on person-to-merchant payments above ₹2,000, capped at ₹300, plus 18% GST on that fee. Payments of ₹2,000 or less, person-to-person transfers, and small P2PM merchants receiving up to ₹1 lakh a month stay at zero. A shop that asks the customer to cover it is making its own choice, not following the rule.