UPI has become one of the most popular digital payment methods in India. Millions of people use UPI every day to pay shopkeepers, street vendors, restaurants, service providers and other merchants.
However, new UPI Merchant Discount Rate (MDR) rules are set to take effect from October 15, 2026, raising questions among customers, shopkeepers and small business owners.
Will small shopkeepers have to pay UPI charges? What about street vendors? Will customers have to pay extra when scanning a QR code? Let's understand the new UPI MDR framework in simple terms.
When Will the New UPI MDR Rules Start?
The revised UPI MDR framework is scheduled to come into effect from October 15, 2026.
Under the new framework, eligible Person-to-Merchant (P2M) transactions above ₹2,000 can attract MDR. For eligible regular P2M transactions, the standard MDR is 0.4%, with a maximum cap of ₹300 per transaction.
However, different rules apply to certain merchant categories and small merchants.
Will Customers Have to Pay UPI Charges?
No.
Customers are not required to pay the MDR charged on eligible merchant transactions.
When a customer scans a merchant's UPI QR code and makes a payment, the MDR is part of the merchant-side payment ecosystem. It is not supposed to be added as an extra charge to the customer's bill.
For example, if you purchase products worth ₹5,000 from an eligible merchant and pay through UPI, the customer should not be charged an additional MDR amount simply because the payment exceeds ₹2,000.
Will Small Shopkeepers Have to Pay MDR?
Small merchants have been given a specific zero-MDR provision.
Under the Person-to-Person-Merchant (P2PM) category, eligible small merchants receiving up to ₹1 lakh in monthly UPI QR receipts can remain in the zero-MDR category.
This can cover certain small businesses such as neighbourhood shops and street vendors, subject to the applicable eligibility criteria.
What Happens to UPI Payments Up to ₹2,000?
UPI merchant payments of ₹2,000 or less remain outside the MDR charge under the new framework.
For example:
- ₹500 UPI merchant payment → No MDR
- ₹1,000 UPI merchant payment → No MDR
- ₹1,500 UPI merchant payment → No MDR
- ₹2,000 UPI merchant payment → No MDR
The applicable rules can differ for specific merchant categories.
What Happens to Payments Above ₹2,000?
For eligible regular P2M transactions above ₹2,000, the standard MDR is 0.4%, subject to a maximum of ₹300 per transaction.
Example
If an eligible merchant receives:
- ₹5,000 → 0.4% MDR = ₹20
- ₹10,000 → 0.4% MDR = ₹40
- ₹75,000 → 0.4% would be ₹300
- Above ₹75,000 → Maximum MDR remains ₹300 per transaction
These examples apply to the standard eligible P2M category and not necessarily to special or zero-MDR categories.
What About Street Vendors and Small Businesses?
Small businesses and street vendors can benefit from the P2PM zero-MDR provision if they meet the applicable criteria.
The framework provides zero MDR for eligible P2PM merchants with monthly UPI QR receipts up to ₹1 lakh.
Therefore, it would be incorrect to say that every small shopkeeper or street vendor will automatically have to pay UPI charges from October 15.
Their classification and monthly UPI QR receipts are important factors.
What If the Shop Is Rented?
Whether a shop is owned or rented is not, by itself, the deciding factor for MDR.
The important factors are the merchant category and whether the merchant meets the applicable P2PM or P2M eligibility criteria.
Therefore, a shopkeeper operating from a rented shop is not automatically included or excluded simply because the premises are rented.
Will Person-to-Person UPI Payments Be Charged?
No.
Person-to-Person (P2P) UPI transactions remain outside this merchant MDR framework.
For example, if you send ₹5,000 to a friend or family member through UPI, this is not the same as making a merchant payment at a shop.
The government has clarified that P2P UPI transactions remain free.
Is UPI MDR a New Tax?
No.
MDR should not be confused with a tax on UPI users.
MDR is a fee within the digital payment ecosystem associated with merchant transactions and payment service providers. It is not a direct tax imposed on customers for using UPI.
Can Merchants Charge Customers for MDR?
Customers should not be charged an additional amount simply to recover the applicable MDR.
The new framework is designed around merchant-side MDR arrangements rather than charging customers an extra fee for making UPI payments.
If a merchant adds a separate UPI fee to a customer's bill, customers should check the bill and the applicable rules before making any assumptions about the charge.
Which UPI Payments Will Remain Free?
The major categories include:
| UPI Payment Type | MDR Status |
|---|---|
| P2P UPI Payment | Free |
| P2M Payment up to ₹2,000 | No MDR |
| Eligible P2PM Small Merchant | Zero MDR up to ₹1 lakh monthly QR receipts |
| Eligible P2M above ₹2,000 | 0.4% MDR, capped at ₹300 |
| Special Merchant Categories | Separate rates may apply |
The government has stated that around 96% of merchant transactions are expected to remain unaffected by the new framework.
Why Is the MDR Framework Being Changed?
The revised framework changes how MDR is applied to certain merchant transactions while keeping UPI payments accessible to consumers.
The structure also provides specific protection for smaller merchants through the P2PM zero-MDR category.
Important Things to Remember
Before assuming that a UPI payment will attract a charge, remember these points:
- The new framework starts from October 15, 2026.
- Customers are not supposed to pay MDR as an additional UPI fee.
- P2P UPI transactions remain free.
- Merchant payments up to ₹2,000 remain outside MDR.
- Eligible small P2PM merchants with up to ₹1 lakh monthly UPI QR receipts can remain zero-MDR.
- Eligible regular P2M transactions above ₹2,000 can attract 0.4% MDR, capped at ₹300.
- Certain merchant categories can have separate MDR provisions.
Frequently Asked Questions
Will customers have to pay UPI charges from October 15, 2026?
No. MDR is not intended to be charged separately to customers for making UPI payments.
Will every shopkeeper have to pay UPI MDR?
No. The applicable MDR depends on the merchant category and eligibility criteria. Eligible small P2PM merchants can remain under the zero-MDR provision.
Is there MDR on UPI payments up to ₹2,000?
Eligible P2M payments up to ₹2,000 remain outside MDR under the revised framework.
What is the MDR on eligible P2M payments above ₹2,000?
The standard MDR is 0.4%, subject to a maximum of ₹300 per transaction.
Do street vendors have to pay UPI charges?
Eligible street vendors and other small merchants can qualify for the P2PM zero-MDR category if they meet the applicable conditions.
Does renting a shop affect UPI MDR?
No. Whether a shop is rented or owned is not itself the determining factor. Merchant classification and eligibility are important.
Conclusion
The new UPI MDR framework from October 15, 2026 does not mean that every customer or shopkeeper will suddenly have to pay a UPI charge.
Customers will continue to use UPI without an additional MDR charge. P2P transactions remain free, while merchant payments up to ₹2,000 remain outside MDR.
Eligible small P2PM merchants with monthly UPI QR receipts up to ₹1 lakh can also remain in the zero-MDR category. For eligible regular P2M transactions above ₹2,000, the standard MDR is 0.4%, subject to a ₹300 per-transaction cap.
Therefore, the exact MDR treatment depends on the type of transaction, merchant category and applicable eligibility criteria, rather than simply whether someone owns or rents a shop.
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