Ordinary customers will continue using UPI without paying merchant processing fees under the revised framework. The rules take effect on 15 October 2026, with exemptions covering several everyday transactions.
The merchant discount rate (MDR) is a fee linked to accepting digital payments. Customers paying businesses will not bear this charge, according to the Finance Ministry. Here are 5 situations where MDR does not apply.
Sending money to friends and family
Personal transfers remain free, regardless of the amount sent. This includes sending to parents, helping relatives or settling everyday expenses with friends.
These are called person-to-person transfers because money moves directly between individuals. The revised merchant fee rules do not introduce charges for these payments.
Paying eligible small merchants
Street vendors and eligible neighbourhood shops will continue receiving payments without MDR. This covers small merchants who receive up to ₹1 lakh per month via UPI QR codes.
They must fall under the specified Person-to-Person-Merchant category to qualify for this exemption. All their transactions remain exempt under this category, helping protect smaller businesses from additional costs.
Making purchases up to ₹2,000
Merchant payments of ₹2,000 or less remain free of . This covers everyday purchases such as groceries, snacks or household items within that amount.
A payment of exactly ₹2,000 also qualifies for the exemption. Specified merchant payments above this threshold attract 0.4% MDR, capped at ₹300.
That charge applies to the merchant payment system while customers remain protected from paying it.
Using UPI AutoPay
Recurring payments set up through UPI AutoPay remain free of MDR. These include regular subscriptions or bill payments collected through an automatic payment arrangement.
The exemption concerns the payment processing charge, not the subscription or bill itself. You must still pay the amount due for the service you use.
Paying smaller essential bills
Payments up to ₹2,000 in essential sectors also remain exempt from MDR. These sectors include railways, telecom, insurance, fuel and agricultural inputs.
For covered transactions above ₹2,000, a flat ₹5 merchant charge applies. This is another merchant fee, not an additional charge payable by customers.
GST on UPI payments
Government sources told ANI, “There is no separate GST on MDR.” However, they clarified that would apply to applicable MDR charges, with businesses eligible for credits.
Officials will monitor implementation to prevent merchants from passing charges to customers. The government has also discussed enforcement with payment aggregators. The ministry says roughly 96% of merchant transactions will remain unaffected.