For a decade, accepting UPI payments cost Indian merchants nothing. That changed on 15 October 2026. If you run a shop, a D2C brand, a clinic, or a SaaS product with Indian customers, you need to understand what the new charge is, who actually pays it, and how it ripples into your GST invoicing and data-handling obligations.
What changed on 15 October 2026
From 15 October 2026, a 0.4% Merchant Discount Rate (MDR) applies to select merchant transactions above ₹2,000, capped at ₹300 per transaction. This is a genuine shift: the 0.4 per cent UPI MDR applies to person-to-merchant (P2M) transactions over ₹2,000.
The good news for your customers is that nothing changes at checkout. UPI remains free for consumers, and all person-to-person transfers and small merchants under the P2PM category are exempt. Businesses also cannot quietly shift the cost onto buyers as a line-item fee: the new UPI charges apply as MDR to merchants only and cannot be passed on as a separate fee to customers.
Who actually pays, and who is exempt
Two exemptions matter for most small businesses. First, ticket size: payments of ₹2,000 or less carry zero MDR regardless of who receives them. Second, merchant category: small merchants under the P2PM category receiving up to ₹1 lakh per month through UPI QR codes remain fully exempt from MDR. If your average UPI collections sit under that monthly threshold, the new fee may not touch you at all.
For transactions that do attract the fee, there is a ceiling on large payments: for transactions of ₹75,000 and above under the standard 0.4% structure, MDR is capped at ₹300 per transaction.
The part many business owners have missed is the tax on the fee itself. Merchant Discount Rate (MDR) on UPI transactions above Rs 2,000 will attract 18% GST. Registered businesses are not left fully out of pocket, though: NPCI clarifies that this tax can be adjusted as input tax credit, easing the burden on GST-registered merchants. Unregistered merchants do not get that relief, as businesses registered under GST should then be able to claim input tax credit (ITC) on the tax paid, while unregistered merchants may have to bear the cost themselves.
What it means for your checkout and app
If you built or bought a checkout flow assuming UPI was a free rail, three things need attention. First, reconciliation: your payment gateway or aggregator will now deduct MDR plus GST on eligible transactions before settlement, so your accounting software needs a rule to book that as a separate expense rather than simply treating the bank credit as the full sale value. Second, pricing strategy: since you cannot surcharge UPI payers directly, any cost recovery has to happen through general pricing, not a payment-method-specific charge. Third, impact assessment: the effect varies by average ticket size, share of UPI in overall collections, sector and whether most invoices are above or below ₹2,000 — so a café with mostly sub-₹2,000 tickets is barely affected, while a furniture retailer or B2B supplier billing in the tens of thousands will feel it on every sale.
This sits alongside other UPI changes rolled out through 2026 that matter if you are updating a mobile app or point-of-sale system. Biometric approval limits were raised mid-year, meaning NPCI increased the per-transaction limit for eligible UPI payments authenticated using on-device biometrics from ₹5,000 to ₹10,000 with effect from 7 August 2026. If your app still hard-codes the old limit for prompting PIN entry, it is worth a quick review.
Don't let MDR confuse your GST e-invoicing
MDR deductions and GST e-invoicing are separate workflows, and mixing them up causes reconciliation headaches. The e-invoicing mandate itself has not changed: as of FY 2026-27, the e-invoice limit in GST is ₹5 crore aggregate annual turnover, in force since 1 August 2023. If your turnover is larger, there is a stricter timing rule to watch: businesses with turnover of ₹10 crore or more must report invoices within 30 days of the document date to the Invoice Registration Portal, effective 1 April 2025.
The practical point is that your sale invoice value, your e-invoice, and the UPI settlement you receive after MDR deduction are three different numbers, and your books need to show all three correctly — the full invoice value for GST purposes, the MDR plus its 18% GST as a separate input cost, and the net bank credit. Treating the net settlement as your sale figure will understate turnover and distort your GST returns.
DPDP: remember payment data is personal data too
Collecting UPI IDs, phone numbers and transaction histories to process payments or send receipts means handling personal data under India's data protection law. The DPDP Rules were notified on 13 November 2025, which set the compliance timeline, and the Act only became enforceable once those rules arrived. Businesses now have until 13 May 2027 to comply.
One milestone falls very soon after this article: on 13 November 2026, one year after notification, Rule 4 brings the Consent Manager framework into force. That date mainly affects organisations seeking to operate as registered Consent Managers rather than ordinary businesses, but it is a useful trigger to start reviewing how your checkout, billing, and CRM systems capture consent and notices for the payment and contact data they store, well ahead of the 2027 deadline.
A short checklist for the next few weeks
- Check whether your average UPI ticket size and monthly P2PM volume keep you under the exemptions.
- Ask your payment gateway how MDR and GST on MDR will appear in settlement reports.
- Update your accounting rules so MDR is booked as a cost, not netted off sales.
- If your turnover crosses ₹10 crore, confirm your billing software reports e-invoices well inside the 30-day window.
- Review what customer and payment data your app collects, and whether your privacy notice and consent flows are ready for DPDP obligations.
None of these changes are dramatic on their own, but together they touch billing logic, accounting, and compliance at the same time — exactly the kind of cross-cutting work that is easy to underestimate until reconciliation goes wrong. If you are updating a billing, checkout or invoicing module to handle this properly, devtechnician.com works with Indian businesses on exactly this kind of software and compliance-adjacent development.
Sources
- UPI MDR Changes 2026: How the New 0.4% Fee Works
- UPI Charges / MDR Policy 2026: 0.4% Fee Rules & Merchant Exemptions
- UPI Rules Changed in India 2026: New Charges, MDR Rules & Business Impact
- MDR on UPI payments face 18% GST; registered biz can claim input tax credit
- UPI MDR, GST input tax credit for merchants, says NPCI
- UPI Transaction New Rules 2026: Limits, Charges & MDR
- Free e-Invoice Applicability Checker FY 2026-27 — GST ₹5 Cr Limit
- Who Must Issue GST E-Invoices in India (2026)?
- DPDP Act Compliance Guide 2026: Rules, Penalties & Checklist
- DPDP Rules 2025: The Full Compliance Deadline Calendar
