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UPI MDR 2026: Will Merchants Lose Money? ₹2,000 Rule
● Policy status: no MDR notified
Updated 14 August 2026
Consumer UPI charge
₹0
Confirmed in Parliament
Merchant MDR
Not imposed yet
Enabling law passed only
Final MDR rate
Not announced
NPCI committee to decide
Bottom line: Parliament has created the legal framework for UPI MDR, but no MDR is currently being charged — on any merchant, on any transaction.
Every business owner searching for UPI MDR merchants 2026 wants the same three answers: will I pay, how much, and starting when. Here is the whole position in one table before the detail.
⏱
UPI MDR 2026 in 30 Seconds
| Is UPI currently free? | Yes |
| Are consumers charged? | No |
| Is merchant MDR active? | No |
| Proposed transaction threshold | Above ₹2,000 |
| Proposed merchant threshold | Reported ₹1–1.5 crore turnover |
| Final MDR rate | Not announced |
| Start date | Not announced |
What follows explains the detail behind each answer — what Parliament passed on 10 August 2026, which merchants the reported proposals target, and what a sensible business should do while the decision is pending.
UPI MDR 2026: What Is Confirmed and What Is Only Proposed
This is a developing policy issue, and most confusion comes from treating reported proposals as settled law. Here is the split.
✅ Confirmed
- UPI consumer payments remain free, including all person-to-person transfers
- No MDR is currently charged on any UPI transaction
- The legal framework changed on 10 August 2026 via Section 10A amendment
- The NPCI-headed UPI and Services Steering Committee will decide the MDR, if any
- No final MDR rate and no start date have been announced
⚠ Proposed / Reported
- A ₹2,000 per-transaction threshold, below which payments stay free
- A merchant turnover threshold of approximately ₹1–1.5 crore
- MDR applying only to certain merchant categories, not all merchants
- A nominal rate set well below existing debit and credit card MDR
- Around 90% of UPI-accepting merchants falling outside scope
What Changed in August 2026
The single most useful distinction is between authority to charge and charging. Parliament granted the first. Nobody has done the second.
Before Aug 2026
Blanket ban
Section 10A prohibited MDR on all UPI and RuPay debit transactions, for every merchant, at every value.
4–10 Aug 2026
Bill passed
Parliament amends Section 10A, replacing the ban with a framework letting the Centre notify which modes stay free.
Today
No MDR imposed
The legal path exists. No rate set, no notification issued, no merchant paying anything.
Next
Rate awaited
The NPCI committee decides the MDR, if any. A government notification would follow before anything applies.
| Before the bill | After the bill |
|---|---|
| Section 10A banned MDR on UPI and RuPay debit card transactions, unconditionally | The Centre may notify which electronic payment modes must remain free, by executive order |
| Zero MDR applied to every merchant, at every transaction size | Specific merchant categories and transaction sizes can be designated for MDR |
| No legal route existed to charge merchants | A legal route exists, but has not been used AS OF 14 AUG 2026 |
Timeline: From UPI’s Launch to the 2026 Bill
APRIL 2016
UPI launched by NPCI
Person-to-merchant transactions carry MDR of up to 0.30% of transaction value.
JANUARY 2020
MDR zeroed out
Amendments to the Payment and Settlement Systems Act and Income Tax Act make MDR zero for RuPay debit and BHIM-UPI. Government subsidy replaces transaction revenue.
FY 2021-22 → FY 2024-25
₹8,730 crore paid in incentives
Four years of incentive payouts covered an estimated 11% of the payment industry’s actual cost, per the Standing Committee on Finance.
MARCH 2026
Standing Committee recommends MDR for large merchants
The Committee concludes that a viable revenue mechanism is critical to UPI’s financial sustainability without perpetually straining the exchequer.
4 AUGUST 2026
Bill introduced in Lok Sabha
Finance Minister Nirmala Sitharaman introduces the Taxation and Other Laws (Amendment) Bill, 2026, amending Section 10A.
10 AUGUST 2026 — CURRENT POSITION
Rajya Sabha returns the bill; process complete
The Finance Minister confirms UPI stays free for consumers, and that the vast majority of merchant transactions, including low-value payments to roadside vendors, remain free.
NEXT — DATE UNKNOWN
NPCI committee decision, if any
The UPI and Services Steering Committee decides on MDR. A government notification would be required before anything takes effect.
What Parliament Said
1
Consumers pay nothing
Replying in the Rajya Sabha on 10 August 2026, the Finance Minister stated UPI payments remain free for consumers, and all person-to-person transactions continue free of charge.
2
Most merchant payments stay free
She added that the vast majority of merchant transactions, including low-value payments to roadside vendors, will continue to remain free.
3
NPCI decides the rate
The Finance Ministry confirmed that once the bill passes, the UPI and Services Steering Committee headed by NPCI will decide on the MDR, if any.
On the rate itself, the Finance Ministry said that if MDR is introduced it would apply to a limited set of merchant transactions above a certain threshold, at a nominal rate significantly lower than debit or credit card MDR. No specific figure was given.
Who Could Pay UPI MDR?
Small merchants
Annual turnover below the reported ₹1–1.5 crore threshold — kirana stores, street vendors, roadside businesses.
Likely unaffectedTransactions up to ₹2,000
Any UPI payment at or below ₹2,000, regardless of how large the receiving merchant is.
Proposed to stay freeLarger merchants
Turnover above the reported threshold and receiving UPI payments above ₹2,000 — both conditions together.
Potential exposureRead this carefully: the ₹1–1.5 crore turnover figure and the ₹2,000 transaction figure come from reported proposals and government statements about likely design. Neither is notified law. The NPCI-headed committee may set different figures, or none at all.
Could My Business Be Affected If MDR Is Notified?
🔍 Quick check
Based on reported proposals. No MDR applies today.
1. Annual business turnover
2. UPI receipts above ₹2,000
How Much Could UPI MDR Cost?
No rate has been announced. The only firm guidance is that any UPI MDR would sit well below card MDR. Here is the comparison that gives that statement meaning.
| Payment method | MDR | Status |
|---|---|---|
| UPI today | 0% | Zero since January 2020 CONFIRMED |
| UPI before 2020 | Up to 0.30% | Historic P2M rate CONFIRMED |
| Debit card | Up to 0.90% | Per RBI guidelines CONFIRMED |
| Credit card | 1.0–3.0% | Varies by card and category CONFIRMED |
| UPI, if introduced | Not announced | Stated as nominal, well below card MDR PROPOSED |
UPI MDR Cost Calculator
Model what different rates would mean for your business. Every rate below is illustrative — none has been announced.
🧮 Model your exposure
Only the share of your UPI sales above ₹2,000 would qualify under reported proposals.
Total UPI sales × qualifying share × illustrative MDR = estimated cost
Estimated monthly cost
₹750
Estimated annual cost
₹9,000
Illustrative only. No MDR rate has been announced. This models hypothetical rates so you can size your exposure — it does not predict a charge. GST at 18% would apply on MDR and is claimable as input tax credit by GST-registered businesses.
| Illustrative rate | Cost on a ₹10,000 transaction |
|---|---|
| 0.1% ILLUSTRATIVE | ₹10 |
| 0.2% ILLUSTRATIVE | ₹20 |
| 0.3% ILLUSTRATIVE | ₹30 |
| 0.5% ILLUSTRATIVE | ₹50 |
Impact by Business Type
| Business type | Typical UPI pattern | Could the threshold matter? |
|---|---|---|
| Kirana store | High volume, mostly ₹50–₹500 per sale | Unlikely — below reported turnover threshold, and almost all receipts under ₹2,000 |
| Restaurant | Mixed; family bills often cross ₹2,000 | Possibly — depends on turnover; only the above-₹2,000 share would qualify |
| Retail chain | High turnover, frequent large-ticket sales | Relevant if notified — worth modelling now |
| E-commerce business | High turnover, order values often above ₹2,000 | Relevant if notified — build into unit economics |
| Service business (clinic, salon, repairs) | Fewer transactions, higher individual value | Depends on turnover; a large share of receipts may sit above ₹2,000 |
| MSME supplier / contractor | Low volume, high value B2B receipts | Turnover often above the reported threshold; most receipts well above ₹2,000 |
What This Means for MSMEs, Contractors & Suppliers
If you supply to government or corporate buyers, payment cost sits inside a wider working-capital picture — and that is where a change like this actually bites. It belongs in your cost build-up the same way EMD, performance guarantee and bank charges already do. MSMEs bidding on public contracts should also check how MSME benefits in government tenders interact with their overall cost position before pricing a bid.
Illustrative scenario
An EPC contractor receives ₹20 lakh per month through UPI, and 40% of those receipts are above the reported ₹2,000 threshold. At an illustrative MDR of 0.30%, the potential cost would be roughly ₹2,400 per month, or ₹28,800 a year, before applicable taxes.
This is a scenario, not a prediction of the final MDR. It illustrates how to size exposure — no rate has been announced.
1
Collection cost enters your quote
If a payment cost applies to receipts, price it into your cost build-up — exactly as you already price bank charges and guarantee costs into a bid.
2
Reconciliation gains a line
Settlement statements would show gross collection, MDR deducted, GST on MDR, and net credit. Your process needs to handle that split from day one.
3
Payment terms matter more
On milestone-based contracts, payment mode, settlement timing and any deduction all shape cash flow — review alongside your contract terms.
Stay ahead of policy shifts
Track the tenders and rules that move your costs
TenderKosh monitors government procurement portals and policy notifications across GeM, CPPP and state portals — so a change that affects your margins never reaches you second-hand.
What Merchants Should Do Now
- Check where you sit — is your turnover above or below the reported ₹1–1.5 crore threshold?
- Measure your qualifying share — what percentage of UPI receipts come from transactions above ₹2,000? For many businesses this is smaller than expected.
- Model, don’t panic — use the calculator above to size an illustrative annual cost.
- Do not surcharge customers — passing MDR to customers is against NPCI guidelines and drives customers away.
- Review your aggregator agreement — understand how settlement, deductions and reporting already work, so any future change is an adjustment rather than a scramble.
- Keep accepting UPI — disabling it would cost far more in lost sales than any proposed rate.
Businesses that bid for public contracts should apply the same discipline here as they do when reading a tender: separate what is confirmed from what is merely reported. That habit is exactly what protects bidders elsewhere too — see how tender eligibility criteria differ between similar tenders for the same principle applied to procurement documents.
Accounting for MDR Correctly
| Task | How to handle it |
|---|---|
| Classification | Book MDR as a payment processing charge under indirect expenses — the same treatment as existing card MDR or bank charges |
| GST | MDR is a financial service; GST at 18% applies and is claimable as input tax credit by GST-registered businesses |
| Revenue recognition | Record gross revenue and MDR as a separate expense — netting MDR against revenue distorts reporting and GST compliance |
| Reconciliation | Reconcile to the settlement statement: gross collection, MDR deducted, GST on MDR, net credit |
Frequently Asked Questions
Is UPI MDR applicable in 2026?
No. As of 14 August 2026, no MDR is being charged on any UPI transaction. Parliament passed an enabling framework on 10 August 2026 that gives the government legal authority to notify MDR in future, but no rate has been announced and no notification has been issued.
Will customers be charged for UPI payments?
No. The Finance Minister confirmed in the Rajya Sabha on 10 August 2026 that UPI payments remain free for consumers, and all person-to-person transactions continue to be free. MDR, if introduced, is a merchant-side cost.
Who will pay UPI MDR?
Under reported proposals, only larger merchants — those above an annual turnover threshold reported at approximately ₹1 to ₹1.5 crore — and only on individual transactions above ₹2,000. These figures are reported proposals, not notified law. Around 90 percent of UPI-accepting merchants are reported to fall below that threshold.
What is the proposed UPI MDR rate?
No final rate has been announced. The Finance Ministry has stated any MDR would be at a nominal rate significantly lower than debit or credit card MDR. Before 2020, UPI person-to-merchant transactions carried MDR of up to 0.30 percent. Debit cards currently carry up to 0.90 percent and credit cards 1 to 3 percent.
What is the ₹2,000 UPI threshold?
Reported proposals suggest MDR would apply only on individual UPI transactions above ₹2,000, even for merchants above the turnover threshold. Transactions of ₹2,000 or below would remain free. This threshold is a reported proposal and has not been formally notified.
Which merchants are exempt from UPI MDR?
Under reported proposals, merchants below the turnover threshold — street vendors, kirana stores, small shops and roadside businesses — would be outside scope entirely. All transactions of ₹2,000 or below would also stay free regardless of merchant size.
When will UPI MDR start?
No date has been announced. The NPCI-headed UPI and Services Steering Committee must first decide on the MDR, if any, and the government must then issue a formal notification. Until that notification is issued, no MDR applies.
Who decides the UPI MDR rate?
The UPI and Services Steering Committee, headed by the National Payments Corporation of India, will decide on the MDR if any, following the passage of the Taxation and Other Laws (Amendment) Bill, 2026.
How will UPI MDR affect businesses?
For merchants below the reported threshold, there would be no impact. For larger merchants, MDR would function as a payment processing cost on qualifying transactions — booked as an expense, with GST on MDR claimable as input tax credit. The impact depends on what share of receipts comes from UPI transactions above ₹2,000.
Sources & Policy References
- Parliament of India (Sansad)The Taxation and Other Laws (Amendment) Bill, 2026 — passed by Lok Sabha 6 August 2026; returned by Rajya Sabha 10 August 2026. sansad.in
- Ministry of FinanceOfficial clarification that consumers face no UPI charge, that all P2P transactions remain free, and that any MDR would apply to a limited set of merchant transactions above a threshold at a nominal rate. finmin.nic.in
- Standing Committee on FinanceReport on the sustainability of the digital payments ecosystem (March 2026), noting government incentives covered a small fraction of industry cost and recommending a viable revenue mechanism.
- NPCIUPI and Services Steering Committee — the body designated to decide the MDR, if any. UPI transaction volume and value statistics. npci.org.in
- Reserve Bank of IndiaMDR guidelines for debit and credit card transactions, used here as the comparison baseline. rbi.org.in
Related Reading
- MSME Benefits in Government Tenders: 9 Provisions Every Small Business Must Know
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