NPCI says new UPI MDR will spare most small merchants from GST-linked costs
NPCI said UPI merchant payments up to ₹2,000 and businesses with monthly UPI receipts up to ₹1 lakh will remain MDR-free. From 15 October, a 0.4% MDR will apply to eligible larger P2M transactions, with caps and sector-specific rates.
What happened
NPCI said GST on UPI MDR will not burden most small merchants: payments up to ₹2,000 and merchants with monthly UPI receipts up to ₹1 lakh remain MDR-free. A
Key facts
- 0.4% MDR on UPI P2M transactions above ₹2,000
- ₹300 MDR cap for transactions of ₹75,000 and above
- ₹5 flat MDR for qualifying essential and thin-margin sectors
- 0.02% MDR for mutual funds, securities, stockbrokers and dealers, capped at ₹300
- 96%+ of UPI merchant transaction volume is up to ₹2,000
- Monthly UPI receipts up to ₹1 lakh exempt from MDR
- 70% of UPI transaction value remains outside the MDR framework
Why this matters
The tiered MDR framework preserves UPI's small-merchant adoption advantage but may strengthen the strategic value of payment orchestration, acquiring, and merchant-fintech capabilities serving larger retailers.
What to watch
- Publication of final NPCI, RBI, GST and acquiring-bank operating circulars defining eligible merchant categories, calculation periods and fee caps.
- Confirmation of whether the ₹1 lakh threshold applies per GSTIN, merchant ID, outlet, legal entity or aggregated group receipts.
- Merchant-acquirer notices on sector-specific MDR rates, tax treatment and effective implementation date of 15 October.
- Changes in UPI transaction mix above ₹2,000, average ticket size and merchant-side payment-method steering among large chains.
- Organized-retail and merchant-association lobbying, consumer complaints, or government statements indicating a rollback, transition period or revised exemption thresholds.
- Model effective payment acceptance cost by store format, average ticket, UPI mix and merchant entity rather than applying a flat fee across the portfolio.
- Review checkout and POS routing rules for eligible UPI transactions; ensure MDR, GST treatment, caps and settlement reporting can be reconciled at SKU/store/entity level.
- Avoid broad customer-facing UPI surcharges until legal, network and consumer-protection rules are explicit; prioritize targeted payment steering for high-ticket baskets if permitted.
- Renegotiate acquiring and payment-aggregator contracts, focusing on MDR caps, pass-through clauses, reconciliation fees and incentives for alternative rails.
- Monitor whether franchisees, marketplace sellers and smaller subsidiaries qualify independently for the monthly UPI-receipts exemption; redesign merchant onboarding only after compliance review.