18% GST to apply on MDR for UPI payments over Rs 2,000 from October 15

A new rule affecting UPI users and shopkeepers takes effect from October 15, 2026. Merchant Discount Rate, or MDR, will apply on merchant UPI transactions above Rs 2,000, and this MDR will also attract 18% GST.

MDR is the charge levied on merchants who accept digital payments, to cover payment processing and settlement. The new rule will apply to certain person-to-merchant UPI payments above Rs 2,000. An 18% GST will be charged on this service fee, meaning there are two separate components: the MDR itself, and the GST on that MDR.

Under the new system from October 15, 2026, person-to-merchant UPI payments above Rs 2,000 will attract an MDR of 0.4%, capped at a maximum of Rs 300. For certain categories such as petrol, railways, telecom and insurance, a fixed MDR rate of Rs 5 has been set.

Here is an example of how the 18% GST will apply. Suppose a customer pays a shopkeeper Rs 5,000 via UPI. This would attract an MDR of 0.4%, or Rs 20. An 18% GST would then apply on this Rs 20 MDR, bringing the shopkeeper's total cost, MDR plus GST, to Rs 23.60.

For amounts of Rs 75,000 or more, the new rule sets a maximum MDR cap of Rs 300 for person-to-merchant UPI payments. If a transaction attracts the maximum MDR of Rs 300, the total cost to the shopkeeper, including 18% GST, could go up to Rs 354.

The calculation is slightly different at petrol pumps. Fuel transactions are exempt from the 0.4% MDR rate. For fuel payments such as petrol and diesel, a flat MDR of Rs 5 has been set for transactions above Rs 2,000. However, this amount is not charged separately to the customer; it is charged to the shopkeeper or merchant.

This means the new rule does not directly affect customers' pockets, but shopkeepers and merchants will have to bear a higher cost for accepting UPI payments than before. The entire system will come into effect from October 15, 2026.