Key Takeaways
- From 15 October 2026, a 0.4% MDR applies to merchant UPI payments above ₹2,000, capped at ₹300.
- Consumers pay nothing — merchants cannot pass it on.
- P2P transfers and payments up to ₹2,000 stay fully free.
- Small merchants (up to ₹1 lakh/month) pay zero MDR.
- SIPs on AutoPay carry no MDR; one-time investments attract just 0.02%.
- MDR is not a tax — it funds banks, payment apps and infrastructure, not the government.
What's Changing
NPCI's 15 September 2026 circular introduces MDR on select merchant UPI payments, effective 15 October. Nothing has changed yet. The rule only touches person-to-merchant (P2M) payments — money sent to a friend, house help or family (P2P) stays free at any amount, always has.
| Payment Type | MDR | Paid By |
|---|---|---|
| P2P, any amount | Zero | — |
| Merchant, up to ₹2,000 | Zero | — |
| Merchant, above ₹2,000 | 0.4%, capped ₹300 | Merchant |
| Small merchant (≤₹1 lakh/month) | Zero | — |
| Railway / fuel / telecom / insurance | Flat ₹5 above ₹2,000 | Provider |
| Mutual funds / brokers | 0.02%, capped ₹300 | AMC / platform |
| UPI AutoPay / mandates | Zero | — |
How It Works
Buy a ₹3,000 item by UPI: MDR of ₹12 is deducted from the merchant's settlement. You still pay ₹3,000; the shop receives ₹2,988. Merchants are barred from adding this as a “UPI fee”, and NPCI bans platform fees too.
Above ₹75,000, the charge is capped at ₹300 — so larger payments carry a lower effective rate (0.15% on ₹2 lakh). Still cheaper than credit cards (1.5–2.5%) or debit cards (up to 0.90%).
Mutual Funds and SIPs
The most misreported point: a SIP running on UPI AutoPay carries no MDR at all. Only a one-time lump-sum UPI payment falls under the capital-markets rate of 0.02% (capped ₹300) — borne by the AMC, not deducted from your investment. A ₹1 lakh lump sum costs the platform just ₹20.
Small Merchants and the Bigger Picture
Vendors receiving up to ₹1 lakh/month via UPI QR pay zero MDR — no GST needed, existing QR codes unchanged. Per the Finance Ministry, roughly 96% of merchant transactions remain unaffected; MDR applies to about 4%, though that slice carries a large share of total value.
Why now: the government subsidy (₹2,196 crore in 2025-26) never covered large merchants, while NPCI pegs annual running costs near ₹20,000 crore. Critics like Ashneer Grover call this a backdoor tax; others, like ex-SBI chief Rajnish Kumar, cite real infrastructure and security costs. Rates sit with NPCI's committee and could change later — but today, nothing shifts your UPI bill.
Disclaimer
Mutual fund investments are subject to market risks. Please read scheme documents carefully. Baid Inbest LLP is an AMFI-registered Mutual Fund Distributor (ARN: 86114). Educational content only, not personalised advice.
Questions on how this affects your SIPs? Talk to an Inbest advisor at www.inbestnow.com or +91 9903921999.
