MDR Explained: What Merchants Pay on UPI, Cards and RuPay, and What Changes on 15 October 2026

MDR, the merchant discount rate, is the fee a business pays on each digital payment it accepts. The customer pays the full price. The merchant receives that price minus the MDR (and GST on the MDR), and the fee is shared among the banks, networks and payment companies that made the payment work.

In India the rate depends heavily on how the customer paid. Some methods carry no MDR at all by law, debit cards have a regulatory ceiling, credit cards don't, and UPI is about to change: from 15 October 2026, NPCI has said UPI merchant payments above ₹2,000 will carry an MDR of 0.4%, with exceptions that matter a lot for small shops, utilities and recurring payments. This guide walks through each case with numbers you can check against your own statement.

When a customer pays you, several parties touch the payment: the customer's bank (the issuer), the network or scheme that connects banks (a card network, or NPCI for UPI and RuPay), your acquiring bank or payment aggregator, and often an app or technology provider in between. Your MDR is how those parties are paid for the work. You pay it to your acquiring bank or aggregator; they share it on.

Two things follow from this. First, MDR is a cost of acceptance, not a charge on the customer. Second, when a rate is set to zero by regulation, the work still costs money; someone else pays for it. For UPI and RuPay debit cards that has been the Government, through an incentive scheme paid to acquiring banks.

This table sets out what is fixed by rule and what is left to your agreement. Rates set by regulation or by NPCI are marked as such. Everything else is commercial, which means your provider quotes it and you can negotiate it.

Since January 2020, UPI has been free for merchants to accept, whatever the amount. NPCI's position now is that the Government incentive was designed as short-term bridge funding, and that a threshold-based MDR gives the UPI ecosystem a steady source of money for infrastructure, fraud prevention and support. The design keeps everyday payments untouched: NPCI says payments up to ₹2,000 make up more than 95% of UPI merchant payments by volume, and they stay at zero.

The 0.4% applies to merchant payments above ₹2,000 made from a customer's bank account to a merchant account. Four groups are treated differently:

Nothing. NPCI's FAQ is explicit on three points: consumers are not charged for UPI payments, UPI apps may not charge a platform fee on UPI payments, and merchants may not pass the MDR on to the customer. Person-to-person transfers remain free at any amount.

Here's what a merchant pays on single UPI payments once the new structure applies. The figures follow NPCI's own examples. They are the MDR only; GST is charged on top of the fee.

Rates only mean something next to each other. The chart shows the MDR on a single ₹10,000 payment under each rule, before GST. The debit-card figure is a ceiling and the credit-card figure is NPCI's typical range, so your actual numbers may be lower or higher.

GST is charged on the fee, not on the payment. Take a ₹3,000 UPI payment to a regular merchant after 15 October 2026. The MDR is 0.4%, or ₹12. If your provider charges GST at 18% on that fee, that's ₹2.16 more, so ₹14.16 is deducted and ₹2,985.84 reaches you. The same arithmetic applies to any fee: apply the rate, then GST on the result.

Businesses registered for GST can usually claim input tax credit on GST charged on these fees; check with your accountant how it applies to you.

Providers label fees differently, which makes comparing quotes harder than it should be. These are the usual terms:

Setup fees, annual maintenance, refund and chargeback fees are separate lines again. When you compare two providers, compare the total they deduct from a real month of your payments, not the headline rate. Our pricing page shows indicative market reference rates for gateways and payouts, clearly labelled, and a calculator that works from rates you enter.

Providers take the fee in one of two ways. Many providers deduct it before settlement, so each credit you receive is already net of MDR and GST, with the deductions itemised in the settlement report. Some arrangements bill fees separately instead, so you receive the gross amount and pay an invoice later. Neither is wrong, but you need to know which one you have, because it changes how you reconcile. The settlement guide walks through reading a net settlement line by line.

A few questions come up every time MDR is discussed:

For UPI, no: NPCI's FAQ says merchants cannot pass MDR charges on to customers. For other methods, check your provider agreement and the card network's rules before adding any surcharge. Separately, RBI's 2025 Master Direction on payment aggregators requires that any charge a merchant adds on top of the price of the goods or service is shown to the payer clearly before the payment is made.

If a meaningful share of your UPI payments are above ₹2,000, the change is worth an afternoon of work now:

MDR is set per method and per agreement, so a business that works with more than one provider often pays different rates for the same payment. An orchestration layer can use that: with intelligent routing, Peneu can route on cost once you've entered your pricing per provider and method, usually as a tie-breaker when success rates are close. The rates themselves still come from your providers. Peneu doesn't set MDR.