UPI New Rules From October 15: Govt Clarifies MDR, GST and RuPay Charges

The government has clarified several points around the new Unified Payments Interface (UPI) Merchant Discount Rate (MDR) framework, which will come into effect from October 15, 2026. Under the revised system, a 0.4% MDR will apply to specified person-to-merchant (P2M) UPI transactions above ₹2,000, while person-to-person payments and most low-value transactions will remain free.

The clarification comes amid questions over whether the new MDR amounts to a new GST or whether the policy was introduced under external pressure. Government sources have rejected both claims and said GST will apply to the MDR component, with eligible businesses able to claim input tax credit.

UPI MDR From October 15: What Changes

From October 15, eligible UPI payments to merchants above ₹2,000 will attract an MDR of 0.4%, subject to the prescribed transaction cap. The charge is applicable to merchants and cannot simply be passed on to customers as a separate UPI fee. UPI MDR on Payments Above INR 2,000 to Stay; Govt Rules Out Reversal.

The new framework does not affect person-to-person UPI transfers. Payments of up to ₹2,000 to merchants will also remain free, while transactions covered under the zero-MDR framework for small merchants will continue without MDR. The Finance Ministry said about 96% of P2M transactions will remain unaffected.

For certain categories, including services such as railways, fuel, telecom and insurance, a flat MDR of ₹5 has been specified for eligible transactions above ₹2,000.

GST on UPI MDR, Not on the UPI Transaction

Government sources have clarified that there is no separate GST being imposed on the UPI transaction itself. However, the MDR charged on eligible UPI merchant payments will attract GST. Recent clarification from a CBIC official said the applicable GST rate on MDR is 18%. Registered businesses that are eligible under GST rules can claim input tax credit on the GST paid on the MDR.

No Separate GST on UPI

Govt Sources on GST on MDR: "There is no separate GST on MDR. Businesses can claim input tax credit on MDR payments. GST will currently be levied on MDR charges applicable to UPI transactions. However, businesses will be able to claim input tax credit against the GST paid.… pic.twitter.com/wAOjkRGNTd

— ANI (@ANI) September 17, 2026

In practical terms, the tax is levied on the MDR amount rather than on the entire value of the UPI payment. For example, on a ₹10,000 eligible transaction, a 0.4% MDR would amount to ₹40. GST at 18% on that MDR would be ₹7.20, making the combined MDR-related cost ₹47.20 before considering any eligible input tax credit. The government has described reports of a separate GST being imposed on UPI payments as misleading. Any concerns arising from the implementation, sources said, can be examined by the GST Council. DFS Rejects UPI User's Claim of MDR Being Passed On to Customers, Says This.

Govt Rejects Claims of External Pressure

Government sources have also rejected allegations that the decision to introduce UPI MDR was taken because of pressure or influence from outside India.

The government has maintained that the MDR framework was introduced after deliberations on the sustainability of the country's digital payments ecosystem. The Finance Ministry said the framework was introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee.

The government has also said MDR is not a tax or a charge collected by the government or NPCI. Instead, the proceeds are distributed among participants in the payments ecosystem, including banks and payment application providers.

Govt Rejects External Pressure Claims

Govt Sources: MDR is not under any pressure. GST on UPI is a false rumour. It will be set off in Input tax credit. If there will be any issue then that will be looked into by the GST Council. We don't see much increase in cash transactions due to MDR. We are confident that there… pic.twitter.com/Axji6D9mTB

— ANI (@ANI) September 17, 2026

RuPay Debit Cards to Remain Free From MDR

The government has further said that RuPay debit card transactions will remain outside the MDR framework. Government sources said NPCI continues to promote RuPay debit cards and that keeping RuPay debit card transactions free from MDR gives them an advantage over other card networks. The clarification comes as the government seeks to distinguish the new UPI merchant-payment framework from charges applicable to other payment instruments.

Will UPI Payments Become Costlier for Customers?

The new MDR is structured as a merchant-side charge, meaning ordinary consumers will not be required to pay a separate UPI fee for making eligible payments. UPI transfers between individuals will remain free regardless of the amount. Low-value merchant payments and transactions covered by the zero-MDR framework will also remain free.

The government has also rejected expectations of a major shift from UPI to cash because of the new MDR. Officials said they do not anticipate a significant increase in cash transactions and do not expect UPI volumes to fall after the October 15 rollout. The new framework is aimed at creating a revenue mechanism for parts of the UPI ecosystem while retaining free access for consumers and protecting smaller merchants from additional costs.

Why the New UPI MDR Framework Matters

UPI has operated largely without merchant charges for several years, with the government supporting the ecosystem through incentives and other measures. The new framework represents a change for selected higher-value merchant transactions. The government and NPCI have said the framework is intended to support the long-term sustainability, expansion, infrastructure and security of the UPI ecosystem. For consumers, the immediate impact is limited because P2P payments and most small-value UPI transactions will continue to be free. The key change will be on the merchant side for eligible transactions above ₹2,000 from October 15.

(The above story first appeared on LatestLY on Sep 17, 2026 04:45 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).