While UPI is widely known for being a free and fast payment method for users, there’s an important aspect most people overlook — MDR. So, what is MDR in UPI, and why does it matter?
MDR full form in UPI is Merchant Discount Rate. It’s a small fee that merchants may need to pay on UPI transactions, depending on the payment method used (like RuPay, credit cards on UPI, or wallets). But MDR doesn’t typically affect regular users.
However, if you’re a merchant or run an online business, understanding UPI MDR charges is essential for managing costs and compliance.
In this blog, we’ll break down what MDR really means in the UPI ecosystem, who pays it, when it’s applied, and how recent changes are reshaping digital transactions in India.
What is MDR in UPI Payment?
The MDR full form in UPI is Merchant Discount Rate. It refers to the fee charged to merchants for processing transactions made through the Unified Payments Interface (UPI).This fee is typically a small percentage of the transaction amount and is paid by the merchant to the payment service provider or bank facilitating the transaction.
While most UPI payments remain free for regular users, MDR applies in certain cases—especially when customers pay using credit cards on UPI or third-party wallets.
Are There MDR Charges for UPI Transactions?
The short answer is: No, there are no MDR (Merchant Discount Rate) charges on regular UPI transactions made directly from a bank account.
What This Means for Users and Merchants
- If a customer pays a merchant using UPI linked to their bank account, no MDR is charged.
- These transactions are free for both users and merchants.
- This policy was officially enforced through a CBDT Gazette Notification dated 30th December 2019, which removed MDR on UPI Person-to-Merchant (P2M) payments.
Government Clarification
To address recent rumors, the Government of India, via the Press Information Bureau (PIB), issued a clear statement:
“Speculation and claims that the MDR will be charged on UPI transactions are completely false, baseless, and misleading.”
The release further explained:
- There is no proposal to levy MDR or GST on standard UPI transactions, even for amounts above ₹2,000.
- Since no MDR is applicable, no GST is charged either.
Source: PIB Press Release
Does the Customer Pay MDR on UPI Payments?
No, customers are not charged MDR (Merchant Discount Rate) on UPI payments.
Whether you’re sending money or paying a merchant using your bank-linked UPI app, there are no extra fees for you. Even when MDR applies, it is charged only to the merchant, not the user.
How Does MDR Affect Merchants Using UPI?
There is no MDR (Merchant Discount Rate) on bank-to-bank UPI payments, especially for Person-to-Merchant (P2M) transactions — making UPI highly cost-effective for merchants.
To support small merchants and ensure they aren’t burdened with transaction costs, the government introduced an incentive scheme with Cabinet approval. As per the PIB Press Release dated March 19, 2025:
“Only the UPI (P2M) transactions up to ₹2,000 for small merchants are covered under the scheme. Incentive at the rate of 0.15% per transaction value will be provided… subject to an upper limit of ₹100 per month.”
Additionally, the PIB Press Release dated March 24, 2025 clarifies:
“The scheme ensures zero MDR on UPI transactions and offers a 0.15% incentive for transactions up to ₹2,000 made to small merchants.”
This means:
- No MDR is charged to merchants on regular UPI P2M transactions.
- For transactions up to ₹2,000, small merchants receive incentives, not fees.
- The cost of processing is reimbursed to banks and shared across the ecosystem.
Author
