NPCI says UPI MDR GST will spare most small merchants as charges begin above ₹2,000
From 15 October 2026, a 0.4% MDR—capped at ₹300—will apply on UPI merchant payments above ₹2,000, with 18% GST levied only on the MDR fee. NPCI says transactions up to ₹2,000 and merchants receiving up to ₹1 lakh monthly via UPI remain exempt.
What happened
NPCI said GST will apply only to UPI MDR, not transaction value. MDR will apply to merchant payments above Rs 2,000 from 15 October, while most small
Key facts
- 0.4% MDR on merchant P2M payments above Rs 2,000 from 15 October
- MDR capped at Rs 300
- Rs 5 concessional MDR for railway, telecom, insurance and fuel categories above Rs 2,000
- 18% GST applies only to MDR fee
- MDR remains zero for transactions up to Rs 2,000
- Over 96% of UPI merchant transactions fall below Rs 2,000
- Merchants receiving up to Rs 1 lakh monthly through UPI are exempt from MDR
- Estimated annual GST collection: about Rs 5,184 crore
Why this matters
Prioritize partnerships with PSPs, acquirers and merchant-software providers that can automate MDR optimization, transaction routing and pricing tools for merchants crossing the ₹2,000 or ₹1 lakh monthly thresholds.
What to watch
- NPCI circular defining merchant eligibility, threshold calculation, exemptions, refunds and anti-splitting controls.
- RBI, Finance Ministry or GST clarification on legal authority, tax treatment and whether the 18% GST applies solely to MDR.
- UPI payment mix above ₹2,000 after 15 October 2026, including changes in average ticket size, card share and bank-transfer substitution.
- Acquirer/PSP pricing announcements and whether they absorb part of the MDR for strategic merchant segments.
- Merchant-association complaints, consumer backlash over checkout steering, and enforcement action against invoice splitting.
- Evidence that high-value merchants migrate recurring collections or B2B payments to alternative rails.
- Model the fee by category: a ₹10,000 UPI sale carries ₹40 MDR plus ₹7.20 GST; the ₹300 MDR cap is reached at ₹75,000.
- Audit merchant portfolios for baskets above ₹2,000 and monthly UPI receipts above ₹1 lakh; prioritize electronics, travel, healthcare, education, jewelry and B2B-adjacent sellers.
- Prepare neutral checkout routing and merchant communications rather than removing UPI acceptance; test whether payment prompts reduce conversion or increase card/EMI use.
- Review PSP/acquirer contracts for MDR pass-through, GST invoicing, settlement reporting and treatment of refunds, partial captures and split tenders.
- Track whether competitors add UPI surcharges; direct surcharging would create reputational and regulatory risk even if merchants seek cost recovery.