UPI MDR Charges Above ₹2,000: 0.4% MDR + 18% GST Explained

Quick Answer

Under the UPI MDR framework announced for eligible Person-to-Merchant (P2M) UPI transactions above ₹2,000, a standard 0.4% Merchant Discount Rate (MDR) applies to the transaction value, subject to a maximum MDR of ₹300 per transaction. In addition, 18% GST is charged on the MDR amount, not on the full UPI payment value. This means the effective processing cost for a standard eligible transaction is 0.472% of the transaction value before the ₹300 MDR cap is reached.

For example, on a ₹10,000 eligible merchant UPI payment, the MDR is ₹40 and 18% GST on that ₹40 is ₹7.20. The total merchant-side payment-processing charge is therefore ₹47.20. The customer still pays the merchant's billed amount of ₹10,000; the MDR and its GST are deducted from the merchant-side settlement. Google Pay's official merchant documentation also confirms that the 18% GST is calculated on the MDR fee and that the customer pays the exact billed amount. Google Pay for Business – MDR fees and GST

What Is the New UPI MDR Charge?

The new framework introduces MDR for specified merchant-facing UPI transactions above ₹2,000. The standard rate is 0.4% of the transaction value, subject to a maximum MDR of ₹300 per transaction.

The important point is that 18% GST is applied to the MDR fee. GST is not calculated on the entire amount paid by the customer.

The basic calculation is:

MDR = Transaction Value × 0.4%

Then:

GST = MDR × 18%

Therefore:

Total merchant-side charge = MDR + 18% GST on MDR

For a standard transaction below the ₹75,000 point at which the ₹300 MDR cap is reached, this is equivalent to:

0.4% + 18% of 0.4% = 0.472%

Most Important Point: GST Is on MDR, Not on the UPI Payment

A common misunderstanding is that a ₹10,000 UPI payment will attract 18% GST on ₹10,000. That is not how the charge is calculated.

For a standard eligible ₹10,000 merchant payment:

• UPI payment received from customer = ₹10,000
• MDR at 0.4% = ₹40
• GST at 18% of ₹40 = ₹7.20
• Total MDR + GST = ₹47.20
• Merchant settlement before considering any other applicable charges = ₹9,952.80

The Government has clarified that MDR is a charge within the payment ecosystem rather than a tax collected by the Government or NPCI. The GST component, however, is applicable to the taxable payment-processing service represented by the MDR. Ministry of Finance – UPI MDR framework

Examples: ₹2,001, ₹5,000 and ₹10,000 UPI Payments

The following examples assume that the transaction is a standard eligible P2M transaction to which the 0.4% MDR applies.

For accounting purposes, the actual settlement statement should always be used as the final reference because other applicable charges, taxes, merchant classifications or settlement adjustments may affect the amount credited.

Detailed Calculation for a ₹2,001 UPI Payment

For a standard eligible merchant transaction of ₹2,001:

MDR = ₹2,001 × 0.4% = ₹8.004

GST at 18% on the MDR:

₹8.004 × 18% = ₹1.44072

Total MDR and GST:

₹8.004 + ₹1.44072 = ₹9.44472

After normal currency rounding, this is approximately ₹9.44.

The merchant would therefore receive approximately ₹1,991.56 from a ₹2,001 transaction, before considering any other applicable settlement adjustments.

Detailed Calculation for a ₹5,000 UPI Payment

For a standard eligible transaction of ₹5,000:

MDR = ₹5,000 × 0.4% = ₹20

GST = ₹20 × 18% = ₹3.60

Total charge = ₹20 + ₹3.60 = ₹23.60

The indicative merchant settlement would therefore be:

₹5,000 − ₹23.60 = ₹4,976.40

Detailed Calculation for a ₹10,000 UPI Payment

For a standard eligible transaction of ₹10,000:

MDR = ₹10,000 × 0.4% = ₹40

GST = ₹40 × 18% = ₹7.20

Total charge = ₹40 + ₹7.20 = ₹47.20

The indicative merchant settlement would therefore be:

₹10,000 − ₹47.20 = ₹9,952.80

This exact ₹40 MDR plus ₹7.20 GST example is also reflected in published explanations of the new framework. Indian Express – GST on UPI MDR

How Much Will a ₹2,000+ UPI Payment Actually Cost the Merchant?

For standard eligible transactions below the MDR cap, the following table provides a quick reference:

For the standard 0.4% category, ₹75,000 is the point at which the ₹300 MDR cap is reached.

What Happens Above ₹75,000?

Once 0.4% reaches ₹300, the MDR is capped at ₹300 per transaction for the standard category.

For example, for a ₹1,00,000 eligible transaction:

• 0.4% of ₹1,00,000 = ₹400
• Applicable MDR after the cap = ₹300
• 18% GST on ₹300 = ₹54
• Total MDR + GST = ₹354
• Indicative settlement = ₹99,646

Therefore, the maximum standard MDR of ₹300 does not mean that ₹300 is the maximum total deduction. Where 18% GST is applicable to the MDR, the total MDR-related amount becomes ₹354.

Google Pay for Business specifically states that its standard commercial-category MDR has a maximum of ₹300 per transaction, with 18% GST applicable to the MDR. Google Pay for Business – Fee deduction and GST

Is 0.4% + 18% GST Equal to 18.4%?

No. This is an important calculation mistake to avoid.

GST is not 18% of the entire UPI payment. It is 18% of the 0.4% MDR.

For example, on ₹10,000:

Wrong calculation: ₹10,000 + 18.4% = incorrect.

Correct calculation:

₹10,000 × 0.4% = ₹40 MDR

₹40 × 18% = ₹7.20 GST

Total = ₹47.20

Therefore, before the MDR cap becomes relevant, the combined MDR and GST cost is effectively 0.472% of the transaction value.

Does the Customer Pay This Charge?

No. The MDR and GST on the MDR are merchant-side payment-processing costs. They are not supposed to be added as a separate UPI surcharge to the customer's bill.

Google Pay for Business explicitly states that the customer pays the exact billed amount and that merchants cannot ask the customer to pay the 0.40% MDR separately or add a surcharge for accepting UPI. Google Pay for Business – MDR and customer charges

The Ministry of Finance has likewise stated that banks have been advised to ensure that merchants do not pass the MDR charge on to customers. Ministry of Finance – UPI MDR clarification

Is the New MDR Only for PhonePe?

No. This is not a PhonePe-only charge.

The underlying framework applies across the UPI payment ecosystem. Therefore, eligible merchant transactions can be subject to the applicable MDR regardless of whether the customer's UPI application is PhonePe, Google Pay, Paytm, BHIM, Amazon Pay, CRED, MobiKwik, Navi, super.money, FamApp or another participating UPI application.

A merchant may receive separate notifications from individual payment providers because each provider manages its own merchant relationship and settlement process. That does not make the underlying MDR framework specific to that provider.

Which UPI Apps and Payment Players Are Relevant?

Examples of UPI-enabled applications and payment players in the Indian ecosystem include:

• PhonePe
• Google Pay
• Paytm
• BHIM
• Amazon Pay
• CRED
• MobiKwik
• Navi
• super.money
• FamApp
• WhatsApp Pay
• PayZapp
• Freecharge
• Jupiter
• Samsung Wallet
• Slice
• Tata Neu
• Groww
• Jio
• Other participating UPI applications and payment providers

The important distinction is that the MDR is associated with the applicable UPI merchant transaction and its classification, not simply with the brand name of the application used by the customer.

Are All Payments Above ₹2,000 Charged at 0.4%?

No. The 0.4% rate is the standard rate for specified eligible P2M transactions. The framework contains different treatment for certain categories.

The Ministry of Finance states that P2P transactions remain free, merchant payments up to ₹2,000 remain free, and specified categories receive special treatment. Ministry of Finance – UPI framework details

What About a ₹5 MDR Transaction?

Specified essential and thin-margin sectors can attract a flat MDR of ₹5 for qualifying transactions above ₹2,000.

In that case, 18% GST on the ₹5 MDR would be:

₹5 × 18% = ₹0.90

The total MDR-related charge would therefore be:

₹5 + ₹0.90 = ₹5.90

This is different from the standard 0.4% category and should not be used for ordinary commercial transactions. Ministry of Finance – Special MDR categories

What About GST Input Tax Credit?

For a GST-registered business, the GST charged on eligible payment-processing services may ordinarily be available as Input Tax Credit (ITC), subject to the normal GST eligibility conditions and proper documentation.

This means the 18% GST on MDR is not necessarily a permanent cost for every GST-registered merchant. The merchant's eligibility to claim ITC depends on its GST status, use of the service and applicable tax rules.

Businesses should retain the relevant tax invoice or settlement documentation and consult their tax professional where necessary. Published tax guidance on the new framework also explains that the 18% GST is levied on the MDR rather than on the underlying UPI payment. Financial Express – GST on UPI MDR

What Should Merchants Check in Their Settlement Statement?

Once MDR is implemented for the applicable merchant account, the settlement statement should be reviewed for:

• Gross UPI payment amount
• MDR rate
• MDR amount
• GST on MDR
• Applicable cap
• Net settlement amount
• Merchant category
• Any other contractual charges

Google Pay for Business states that merchants can view the gross payment, MDR fee, 18% GST and net settlement in the transaction and settlement information. Google Pay for Business – Fee breakdown

What Merchants Should Do Before the MDR Becomes Applicable

1. Identify transactions above ₹2,000. Review the percentage of your UPI sales that exceed the threshold.
2. Check your merchant classification. Confirm whether your business qualifies for a special or zero-MDR category.
3. Calculate the expected cost. For standard eligible transactions, calculate 0.4% MDR and then 18% GST on the MDR.
4. Check your payment providers. Review communications from PhonePe, Google Pay, Paytm, payment aggregators, acquiring banks and other UPI providers you use.
5. Review settlement statements. Confirm how MDR and GST are actually displayed after implementation.
6. Update accounting records. Record MDR and GST separately where appropriate.
7. Check ITC eligibility. GST-registered businesses should verify whether the GST component qualifies for input tax credit.
8. Do not charge the customer separately. Do not add an unauthorized UPI surcharge to recover MDR.

Quick MDR + GST Calculator Table

Important Difference Between MDR and GST

Frequently Asked Questions

Is 18% GST charged on the entire UPI payment above ₹2,000?

No. For the standard MDR structure, 18% GST is calculated on the MDR amount. For a ₹10,000 transaction, MDR is ₹40 and GST is ₹7.20, making the total MDR-related charge ₹47.20.

How much will a merchant pay on a ₹2,001 UPI payment?

For a standard eligible transaction, 0.4% MDR is approximately ₹8.00. GST at 18% on that MDR is approximately ₹1.44. The total MDR plus GST is approximately ₹9.44.

How much will a merchant pay on a ₹5,000 UPI payment?

The MDR is ₹20 and 18% GST on the MDR is ₹3.60. The total MDR-related cost is ₹23.60.

How much will a merchant pay on a ₹10,000 UPI payment?

The MDR is ₹40 and GST on the MDR is ₹7.20. Therefore, the total MDR plus GST is ₹47.20.

What is the effective percentage after adding GST?

Before the ₹300 MDR cap becomes applicable, 0.4% MDR plus 18% GST on the MDR produces an effective cost of approximately 0.472% of the transaction value.

What is the maximum MDR for a standard UPI merchant transaction?

The standard MDR is capped at ₹300 per transaction. If 18% GST applies to the capped MDR, the GST is ₹54, making the total MDR-related amount ₹354.

Can a merchant charge the customer the 0.4% MDR?

No. Merchants should not add the MDR as a separate surcharge to the customer's UPI bill. The customer should pay the listed price, while the applicable MDR is handled within the merchant-side payment ecosystem.

Does this apply only to PhonePe?

No. The MDR framework is not a PhonePe-specific fee. It applies to eligible transactions across the UPI ecosystem, including transactions involving participating applications such as Google Pay, Paytm, BHIM, Amazon Pay, CRED, MobiKwik and others.

Are UPI payments of ₹2,000 or less charged MDR?

No. Merchant payments up to ₹2,000 remain outside the standard MDR framework.

Are Person-to-Person UPI transfers affected?

No. The Ministry of Finance states that P2P UPI transactions remain completely free irrespective of the amount transferred.

Can a GST-registered merchant claim the GST paid on MDR?

GST paid on eligible payment-processing services may ordinarily qualify for Input Tax Credit when the statutory conditions are satisfied. Merchants should maintain proper tax invoices and confirm eligibility with their tax adviser.

Is October 15, 2026 definitely the implementation date?

The framework was announced with October 15, 2026 as the planned implementation date. However, as of October 8, 2026, reports indicate that the rollout is being considered for postponement and that a final decision from NPCI was pending. Merchants should therefore verify the latest official communication before relying on the October 15 date.

Conclusion

The new UPI MDR framework should not be described simply as a 0.4% UPI charge. For a standard eligible P2M transaction above ₹2,000, the merchant-side calculation is 0.4% MDR plus 18% GST on the MDR.

For example, a ₹2,001 payment results in approximately ₹9.44 of MDR plus GST, a ₹5,000 payment results in ₹23.60, and a ₹10,000 payment results in ₹47.20. For transactions where the ₹300 MDR cap applies, the maximum standard MDR-related amount becomes ₹354 including 18% GST.

The charge is not limited to PhonePe. It is part of the wider UPI merchant-payment framework and therefore concerns eligible transactions processed through the broader ecosystem, including Google Pay, Paytm, BHIM, Amazon Pay, CRED, MobiKwik and other participating UPI applications and payment providers.

At the same time, merchants should remember that the 0.4% rate does not apply universally to every UPI transaction. P2P payments, P2M payments up to ₹2,000, qualifying small merchants and specified special categories have different treatment.

Finally, the originally announced October 15, 2026 implementation date is currently subject to a reported possible postponement. The latest official NPCI/provider communication should therefore be checked before merchants make operational or accounting changes based on the date.

Sources

• Ministry of Finance / Press Information Bureau – UPI MDR Framework
• Google Pay for Business – MDR Fees, 18% GST and Merchant Settlement
• Department of Financial Services – FAQs on MDR on Select UPI P2M Transactions
• Indian Express – 18% GST on UPI MDR
• Financial Express – UPI MDR, GST and Input Tax Credit
• Reuters – Reported Review of the UPI MDR Rollout Date