Common Misconceptions About UPI MDR

Misconception 1: All UPI payments will become chargeable.

Incorrect. The announced framework keeps P2P transfers, merchant transactions up to Rs 2,000 and eligible small-merchant transactions free of MDR. The government estimates that around 96% of merchant transactions will remain unaffected.

Misconception 2: GST will be charged on the entire UPI payment.

GST on MDR relates to the payment-processing fee, not the full transaction amount. Eligible GST-registered merchants may be able to claim ITC, subject to applicable rules.

Misconception 3: Customers must pay the MDR.

The announced framework places MDR within the merchant-payment ecosystem. Banks have been advised to prevent merchants from passing the fee on to customers.

Misconception 4: The new MDR was implemented on October 15, 2026.

Incorrect. NPCI postponed the rollout until after Diwali. A revised implementation date is to be notified separately. 

CS Varsha Kingwani, Owner of Kingwani & Associates and a practising Company Secretary, sought to address misconceptions surrounding the proposed MDR framework. She clarified that the proposal concerns eligible merchant transactions rather than a general tax on all UPI payments. Her explanation also highlighted that person-to-person (P2P) transfers are intended to remain free, helping distinguish transaction-specific processing charges from a blanket levy on digital payments.