New UPI Charges from October 2026: What Businesses Need to Know

UPI has become one of the most convenient ways for Indian businesses to collect payments. From retail stores and restaurants to e-commerce businesses and service providers, merchants rely on UPI for quick and seamless collections.

But from 15 October 2026, the UPI payment ecosystem is changing.

A new Merchant Discount Rate (MDR) framework will apply to certain UPI merchant transactions. Under the new framework, eligible Person-to-Merchant (P2M) transactions above ₹2,000 will attract an MDR of 0.4%, subject to specific exemptions and caps.

However, this does not mean that customers will suddenly have to pay a UPI transaction fee.

The charge applies within the merchant payment ecosystem, while UPI remains free for consumers under the announced framework.

For businesses, the important question is:

What exactly is changing, how will MDR affect your collections, and how should you record these charges in your accounts?

Let’s understand it clearly.

What Is Changing in UPI From October 2026?

The revised UPI framework will introduce MDR on specified merchant transactions from 15 October 2026.

For eligible P2M transactions:

• Up to ₹2,000: No MDR

• Above ₹2,000: 0.4% MDR

• Transactions of ₹75,000 and above: MDR capped at ₹300 per transaction

• Person-to-Person (P2P) transactions: Remain free

• Qualifying small merchants: Continue under the zero-MDR framework

The government has clarified that approximately 96% of merchant transactions will remain unaffected by the new MDR framework.

Important: UPI Is Not Becoming a Customer Paid Service

One of the biggest misconceptions around the announcement is that customers will now have to pay extra for UPI.

That is not what the new framework says.

MDR is a merchant-side payment ecosystem charge. The government has stated that customers should not be charged MDR and that banks have been advised not to allow merchants to pass the MDR cost on to customers.

What Is MDR?

MDR stands for Merchant Discount Rate.

It is a fee associated with processing certain digital payments received by merchants.

Under the new UPI framework, MDR will be applicable to specified merchant transactions and will be distributed among participants in the payment ecosystem, including banks, payment service providers and UPI application providers.

For a business, the practical impact is simple:

Customer pays the invoice → UPI processes the payment → applicable MDR is deducted/settled within the payment ecosystem → business receives the net settlement.

This means your accounting records may need to distinguish between:

Gross UPI Collection → MDR → Net Amount Received

UPI MDR Rates: What Businesses Need to Know

The exact treatment depends on the transaction category and merchant classification.

Example: How 0.4% UPI MDR Works

Suppose your business receives a ₹10,000 payment through UPI and the transaction falls under the standard eligible P2M category.

MDR:

The customer still pays ₹10,000.
The ₹40 is a merchant-side payment processing cost under the applicable framework.

What Happens With a ₹1 Lakh UPI Payment?

For an eligible transaction of ₹1,00,000:

0.4% of ₹1,00,000 = ₹400

But the framework specifies a maximum MDR of ₹300 per transaction for transactions of ₹75,000 and above.

Therefore:

This is why businesses handling high-value UPI collections should pay attention to their settlement reports rather than simply matching the invoice amount with the bank credit.

Which UPI Payments Will Remain Free?

Not every UPI transaction will attract MDR.

1. Person-to-Person Payments

If one individual sends money to another individual, the transaction remains free irrespective of the amount transferred.

2. Merchant Payments Up to ₹2,000

Eligible P2M transactions up to ₹2,000 remain outside MDR.

So a customer paying ₹1,500 to an eligible merchant through UPI will not trigger the standard 0.4% MDR.

3. Qualifying Small Merchants

Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category continue to receive zero-MDR treatment under the announced framework.

This is particularly relevant for small neighbourhood shops, street vendors and micro-businesses.

Are There Special Rates for Certain Sectors?

Yes.

The framework provides a special flat MDR of ₹5 per transaction for transactions above ₹2,000 in certain essential and thin-margin sectors.

These include sectors such as:

• Railways

• Telecommunications

• Insurance

• Fuel

• Agricultural inputs

This category is different from the standard 0.4% MDR structure.

Certain capital-market transactions, including specified payments related to mutual funds, securities, stockbrokers and dealers, have a separate 0.02% MDR, subject to a ₹300 cap.

What Does the New UPI MDR Mean for Businesses?

For businesses, the biggest change isn't necessarily the amount of the charge.

It is the need for better payment reconciliation and accounting visibility.

Before the new framework, many businesses could simply compare:

Invoice Amount = Bank/UPI Settlement

With applicable MDR, businesses may need to track:

Invoice Amount → UPI Collection → MDR → Net Settlement

This becomes particularly important when a business receives hundreds or thousands of UPI payments every month.

5 Things Businesses Should Do Before October 15

1. Review Your UPI Collections

Understand how much of your monthly revenue comes through UPI.

Look at:

Number of UPI transactions
Average transaction value
Transactions above ₹2,000
Monthly UPI collection
UPI settlement amounts

This will help you understand whether the new MDR framework is relevant to your business.

2. Keep UPI Charges Separate in Your Accounts

If MDR is applicable, don't simply treat the net bank settlement as the sales value.

For example:

Sales = ₹10,000

MDR = ₹40

Bank Settlement = ₹9,960

The ₹40 payment processing charge should be identifiable separately in your books.

This gives you a clearer picture of your actual payment-processing expenses.

3. Reconcile Gross Collections With Bank Settlements

Suppose your business invoices customers for ₹5 lakh through UPI.

Your bank statement may not necessarily show ₹5 lakh as a single matching credit if settlement deductions are involved.

A proper reconciliation process should help answer:

Which customer payment was received?
What was the gross amount?
Was MDR deducted?
What amount reached the bank?
Does the settlement match the payment records?

This becomes increasingly important as UPI collections grow.

4. Monitor Payment Gateway and Bank Reports

Your UPI/payment provider's settlement report can become an important accounting document.

Businesses should regularly compare:

Sales Register + UPI Collection Report + Settlement Report + Bank Statement

Any difference should be identifiable instead of remaining as an unexplained bank adjustment.

5. Don't Pass the MDR Cost to Customers Without Checking the Rules

The government has specifically stated that MDR is not a customer charge and that banks have been advised to ensure merchants do not pass MDR on to customers.

Businesses should therefore review the applicable rules and their payment provider's implementation before adding any separate UPI charge to customer invoices.

How UPI MDR Can Affect Your Profitability

For businesses with a large volume of high-value UPI transactions, even a small percentage can become meaningful over time.

For example, assume an eligible business processes:

₹50 lakh of qualifying UPI payments

At 0.4%:

₹50,00,000 × 0.4% = ₹20,000

The actual MDR payable can vary depending on transaction-level caps, merchant category and applicable exemptions.

This is why businesses should track payment-processing expenses alongside sales and other operating costs.

UPI Reconciliation Becomes More Important

Imagine a business receives 500 UPI payments in a month.

Without proper reconciliation, it can become difficult to identify:

• Which payments belong to which invoices

• Which payments were settled together

• How much MDR was deducted

• Whether settlement amounts match bank credits

• Whether any payment remains unreconciled

A structured accounting system can make this process much easier.

Instead of checking every transaction manually, businesses can maintain a clear connection between their sales, payment collections, bank transactions and expenses.

How hisabkitab Helps Businesses Manage Payments & Accounts

With hisabkitab, businesses can bring their accounting and financial operations into one place.

Instead of maintaining separate records for sales, expenses, bank transactions and payment settlements, businesses can manage their accounts through a connected cloud accounting system.

With hisabkitab, businesses can manage:

GST Billing & Invoicing
Create professional invoices and keep sales records organised.

Bank Reconciliation
Match bank transactions with your accounting records and identify differences more easily.

AI-Powered OCR Automation
Reduce manual data entry from bills and financial documents.

Real-Time Business Insights
Get visibility into sales, expenses, outstanding amounts and business performance.

Multi-User & Role Based Access
Allow your team and accounting professionals to work with controlled access.

Cloud Accounting
Access your business accounts from anywhere without depending on a single computer.

For businesses receiving payments through multiple channels, maintaining accurate records becomes especially important as payment-processing structures evolve.

The new UPI MDR framework does not mean that UPI payments are suddenly becoming chargeable for everyone.

From 15 October 2026, specified merchant transactions above ₹2,000 will come under a new MDR structure, while P2P payments, eligible transactions up to ₹2,000 and qualifying small merchants will continue to remain outside the standard MDR framework.

For businesses, the important change is the need to keep a closer eye on payment charges, settlements and reconciliation.

As digital collections become a bigger part of business revenue, accurate accounting is no longer just about recording sales. It is also about knowing what was collected, what was deducted and what actually reached your bank account.

With hisabkitab, keep your sales, billing, banking and accounting connected so your business numbers stay clear as payment rules evolve.

Ready to simplify your business accounting? Book your FREE demo with hisabkitab today.