Consumers Do Not Need to Pay the Tax: Clarification on UPI 0.4% MDR Charge

By Business Bureau

New Delhi Chronicle

NEW DELHI — Consumers do not need to pay the tax or any additional charges when making UPI transactions. Recent notifications surrounding a revised regulatory framework for digital payments have caused widespread confusion among everyday buyers. Reports highlighting a Merchant Discount Rate (MDR) of up to 0.4% starting October 15, 2026, led many to believe that customers would face extra fees at checkout.

Official guidelines from the government and banking authorities confirm that customers remain completely exempt from this charge.

What is the 0.4% MDR Charge?

Starting October 15, 2026, a Merchant Discount Rate (MDR) of up to 0.4%—capped at ₹300—will apply to certain Person-to-Merchant (P2M) transactions exceeding ₹2,000.

MDR is a technical processing fee charged by payment service providers and banks to maintain digital payment infrastructure.

Who Actually Pays the Fee?

The fee is levied exclusively on the merchant or business owner accepting the payment, not on the consumer.

 Person-to-Person (P2P) Payments: Money transfers between friends, family members, or personal accounts carry ₹0 in fees, regardless of the transaction amount.

 Person-to-Merchant (P2M) Payments: If you pay ₹10,000 or any amount at a shop, supermarket, or online store, you still pay ₹0 extra. The merchant absorbs the 0.4% MDR charge.

Why the Confusion Occurred

Technical updates regarding processing fees often circulate without clear context, leading users to worry that extra costs will be added to their bills. Under the guidelines, merchants and UPI apps are prohibited from adding extra fees to customer checkouts. Everyday digital payments remain 100% free for consumers.