UPI MDR From October 15: Who Pays the 0.4% Fee and Who Stays Exempt

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Covered merchants face an additional processing expense. Traders opposing the fee have raised concerns about the expense businesses will bear immediately. The government, meanwhile, says the receipts will fund payment infrastructure over time. Personal transfers remain exempt, as do low-value merchant payments and receipts covered by the small-vendor exemptions.

How Will The UPI Fee Affect Customers And Small Shops?

Customers sending money to family or paying a shop will remain exempt from UPI transaction charges. Approximately 96% of person-to-merchant transactions will see no change, the Finance Ministry stated on 15 September 2026 in Release ID 2310586. The ministry counted transactions for this estimate. It did not say that 96% of customers or businesses qualify for exemption.

For qualifying small vendors, the Person-to-Person-Merchant, or P2PM, classification preserves the exemption. Receiving more than ₹2,000 in a payment does not, by itself, make an exempt vendor liable for MDR. The September FAQs say merchant categorisation determines the treatment. Existing QR codes can continue operating without replacement. 

Why Does The Government Want Merchants To Pay?

In the ministry’s view, subsidies would not be enough to finance UPI’s further growth. Cybersecurity and fraud prevention require ongoing spending, along with the infrastructure that processes payments. It proposed collecting a fee on selected merchant transactions while keeping UPI free for customers.

Economic commentator A K Bhattacharya supported selective charges in his analysis published on 3 October 2026, but questioned whether the government had adequately consulted merchant associations. He also recorded opposition from the Swadeshi Jagaran Manch. His assessment captures the dispute: the government wants payment revenue, while affected traders face a new expense for accepting UPI. 

Which UPI Payments Will Attract MDR?

The Finance Ministry’s 15 September 2026 statement sets different rates for standard commercial payments and specified sectors. The following table summarises that official structure.

Merchants cannot pass MDR directly to customers. UPI applications are also prohibited from imposing platform fees or hidden charges. The ministry says MDR goes to payment-system participants and is not a tax collected by the government. 

Our reading of the rules is that the ₹2,000 threshold cannot be assessed in isolation. Merchant classification comes first. A blanket decision to reject larger UPI payments would overlook the exemptions, while applying 0.4% to every business receipt would overlook the special rates.

What Changed Before The October 15 Rollout?

Zero MDR for person-to-merchant UPI payments took effect in January 2020, following a notification dated 30 December 2019. The Finance Ministry confirmed this history in its statement of 18 April 2025, Release ID 2122747.

The government’s August 2026 statement a possible threshold-based MDR on selected merchant transactions. September’s documents then supplied the rates, exemptions and scheduled commencement. Both announcements retained the commitment to free UPI payments for consumers. 

Conclusion

The October 15 framework places MDR on eligible merchant receipts. Customers remain exempt. A business’s account classification determines its eligibility for exemption. Where MDR applies, the payment category and transaction amount determine whether the business pays the standard or a special rate.

Frequently Asked Questions

1. When Will The Revised UPI MDR Begin?

The Department of Financial Services’ September FAQs give 15 October 2026 as the commencement date.

2. Will UPI Payments Above ₹2,000 Affect Customers Or Only Merchants?

The notified MDR applies to eligible merchants. The customer owes no MDR, and the merchant is not allowed to recover it by adding the fee to the customer’s bill.

3. Will Sending Money To Parents Or Siblings Remain Free?

Yes. Person-to-person transfers remain free, irrespective of the amount transferred within permitted transaction limits.

4. Does Every Shop Pay 0.4% On Larger UPI Payments?

No. Eligible P2PM vendors remain exempt, while specified merchant categories have separate rates.

5. Is ₹300 A Customer Charge On Large UPI Payments?

No. ₹300 is the maximum standard merchant-side MDR for eligible payments of ₹75,000 and above.