UPI Charges Above Rs 2,000 from 15 October 2026: What Shopkeepers Actually Pay, and Why Your UPI Receipts Can Bring a GST or Income Tax Notice

UPI charges from 15 October 2026: shops pay up to 0.4% on UPI payments above Rs 2,000, capped at Rs 300. Customers pay nothing extra. It is not GST.

Update, 10 October 2026: The official start date is still 15 October 2026, and the Supreme Court refused to stop the charge on 28 September. News reports on 8 and 9 October said NPCI is considering moving the start to 1 January 2027 and widening the exemption for small businesses, but the UPI Steering Committee meeting expected on 9 October did not take place, and no decision had been announced by the evening of 10 October. Check the latest NPCI announcement before you change anything. We will update this page once the decision is confirmed.

It started with a handwritten sign taped next to the QR code at a grocery counter: "UPI above Rs 2,000 - 0.4% extra." A photo of it went around WhatsApp groups, and since then shopkeepers, clinic owners and wholesalers have been asking the same three questions. Will I now pay a charge on every UPI payment? Is this GST on UPI? And, the one that actually matters, will all these UPI receipts bring me a tax notice? A sign like that, by the way, is not allowed: NPCI says merchants cannot pass the charge on to customers.

Short answer: Under NPCI's circular of 15 September 2026, banks and payment apps can charge a shop a Merchant Discount Rate (MDR) of up to 0.4% on customer-to-shop UPI payments above Rs 2,000, capped at Rs 300 per payment. The MDR is paid by the shop. It is not a tax, and the shop is not allowed to add it to the customer's bill. Payments of Rs 2,000 or less, all person-to-person transfers, and small merchants receiving up to Rs 1 lakh a month on UPI stay free. The charge is small. The bigger issue is that every UPI rupee you receive is a clean, date-stamped record that the GST and income tax departments can match against what you have declared.

UPI charges: the dates that matter

14 September 2026: a Finance Ministry gazette notification (S.O. 5067(E)) barred banks and payment companies from charging anyone, payer or shop, for UPI payments up to Rs 2,000 and for RuPay debit card payments of any amount.
15 September 2026: NPCI issued its circular (NPCI/UPI/OC No. 237/2026-27) setting the MDR on higher-value merchant payments.
28 September 2026: the Supreme Court refused to stay the framework and gave the Centre, RBI and NPCI four weeks to reply.
8 October 2026: the GST Council met. The Finance Minister said there was no discussion on MDR.
15 October 2026: the official start date, though a move to 1 January 2027 was reported to be under consideration.

What exactly changes?

Person-to-merchant (P2M) UPI payments above Rs 2,000 attract MDR of up to 0.4% on the full amount, not just the part above Rs 2,000. A Rs 3,000 payment costs the shop Rs 12.
The MDR is capped at Rs 300 per payment, which is reached at Rs 75,000.
Payments of Rs 2,000 or less stay free. The limit is per payment, not per day.
Person-to-person (P2P) transfers between individuals stay free, whatever the amount.
Small merchants in the P2PM category, shops that take QR payments straight into their own bank account, stay at zero MDR while they receive up to Rs 1 lakh a month on UPI. If you receive more than Rs 1 lakh a month for three months in a row, your bank can move you to the regular merchant category. GST registration has nothing to do with this test.
Some sectors pay a flat Rs 5 per payment above Rs 2,000 instead of 0.4%. The government's list includes railways, telecom, insurance, fuel and agricultural inputs, and NPCI's FAQs add utility bills such as electricity, water and piped gas. Mutual fund and share broking payments pay 0.02%, capped at Rs 300.
RuPay debit card payments carry no MDR at any amount, so a customer making a large purchase can pay that way.

How much will it actually cost my shop?

Less than most people fear. Take three examples:

A customer pays Rs 4,000 for a school uniform order: MDR is Rs 16
A retailer pays a wholesaler Rs 50,000 by UPI: the wholesaler's MDR is Rs 200
A customer pays Rs 90,000 for a refrigerator: MDR hits the cap of Rs 300

Now look at your own month. Suppose a hardware shop in Keshod receives Rs 12 lakh a month on UPI, and roughly half of that comes in payments above Rs 2,000. The MDR on Rs 6 lakh at 0.4% is Rs 2,400 a month, or about Rs 28,800 a year.

GST at 18% applies to the MDR amount only, not to your sale. On Rs 2,400 of MDR, that is Rs 432 of GST a month. A regular GST-registered shop can usually claim this back as input tax credit, if its GSTIN is on record with the bank or app so that the invoice shows in GSTR-2B. Composition dealers and unregistered shops cannot claim it, so for them it is an extra cost.

Rs 28,800 a year is real money for a small shop. But it is also a fully deductible business expense, and it is far smaller than what a single wrong tax position can cost you.

Is this GST on UPI payments?

No. In April 2025 the Finance Ministry called claims of GST on UPI payments above Rs 2,000 "completely false", and there is still no GST on the money a customer pays you. The MDR is a fee shared among banks and UPI apps, with 5% going to a fund to help small merchants. The government has said MDR is "neither a tax nor a charge collected by the Government or NPCI".

Where GST does come in is the other way round. Your UPI receipts are your sales. If those sales cross the GST threshold, you need to be registered and pay GST on them, whether the customer paid in cash, by card or by UPI. Not every UPI credit is a sale, though. Loans, family transfers and refunds also arrive by UPI, so keep records that explain them.

Can I pass the 0.4% on to my customer?

No. NPCI's FAQs say merchants cannot pass the MDR on to customers, and the government has told banks to make sure they do not. The customer pays only the price you display. Banks are setting up ways for customers to report shops that add a UPI surcharge, so a "UPI extra" sign can get you into trouble with your bank. If your margins cannot absorb the fee, review your prices instead.

Should I switch to my personal UPI ID to avoid the charge?

We are already hearing this idea, and it is a bad one. Person-to-person transfers are free, so some shopkeepers are thinking of putting a personal QR code on the counter. Three problems follow:

Banks can question or restrict savings accounts that are used to collect business payments, and sorting that out can take weeks.
Your business income gets mixed with personal money. When a notice comes, you have to explain every credit, and a mixed account makes that painful.
It looks like an attempt to keep sales out of the books. If the department later matches those credits to your business, the explanation "I used my personal ID to save 0.4%" does not help your case.

If your shop is small, you do not need a personal ID to stay free anyway: small merchants receiving up to Rs 1 lakh a month on a UPI QR already pay zero MDR.

Can UPI receipts really trigger a GST notice?

Yes, and this is not a theory. In July 2025, Karnataka's Commercial Taxes Department sent GST notices to small traders, including vegetable sellers, based on their UPI receipts. The Chief Minister said about 9,000 traders had received some 18,000 notices. After protests, the state said on 23 July 2025 that the old tax in those notices would be dropped for traders who register under GST, and that exempt items such as milk, vegetables and fruit would not be taxed.

In Gujarat, the Rs 40 lakh registration limit applies only if you sell goods alone. If you also supply services, for example mobile repairs, or you sell pan masala, tobacco products or ice cream, the limit is Rs 20 lakh. For services, it is Rs 20 lakh. Rs 40 lakh sounds large, but it is only about Rs 3.3 lakh a month, and Rs 20 lakh is about Rs 1.7 lakh a month.

Here is the trap many people miss. Aggregate turnover includes exempt sales. If you sell milk, fresh vegetables or unbranded grain (exempt) alongside packaged food, soaps and cold drinks (taxable), the exempt sales still count towards the limit. A shop doing Rs 25 lakh of exempt sales and Rs 18 lakh of taxable sales has crossed Rs 40 lakh and needs to register, even though its taxable sales alone are well below it. If you sell only exempt goods, such as only fresh vegetables, you do not need to register at all, however high your UPI receipts.

On 8 October 2026, the GST Council recommended that no show cause notice be issued where the tax involved is below Rs 10,000. That needs a change in the law, so for now every notice must be answered on time. Our guide to replying to a GST notice explains how.

And an income tax notice?

This is where UPI data hurts more quietly. Banks and other reporting entities send high-value information to the income tax department, such as large cash deposits, interest and tax deducted or collected, and this appears in your Annual Information Statement (AIS). If your return shows much lower income than this data, or than your GST returns and bank statements, you can get a notice asking you to explain the gap.

There is a positive side for honest businesses. Under the presumptive taxation scheme (section 44AD up to 2025-26, and section 58 of the Income-tax Act, 2025 from tax year 2026-27), profit on digital receipts, which includes UPI, is taken at 6% of turnover instead of 8% for cash. And the turnover limit for the scheme goes up from Rs 2 crore to Rs 3 crore when cash receipts are not more than 5% of the total. So more UPI, properly declared, can actually reduce your tax and keep you out of audit.

What should a shopkeeper do now?

Check which QR code you are using. Ask your bank or payment app, in writing, whether your QR is in the small-merchant (P2PM) category or the regular merchant (P2M) category, and how they count the Rs 1 lakh a month. Keep business money separate from personal money. If your UPI receipts are below Rs 1 lakh a month, confirm you will keep zero MDR before you move to a new merchant QR.
Add up last year's UPI receipts. Download statements from your bank and payment apps for 2025-26 and total the business credits. Compare this with the turnover in your ITR.
Include exempt sales when checking the GST limit. If the total is near or above the limit that applies to you, Rs 40 lakh or Rs 20 lakh, talk to someone now, not after a notice.
Consider the composition scheme. A Gujarat trader with turnover up to Rs 1.5 crore can pay GST at 1% of taxable turnover, with quarterly payment and one annual return. But you cannot charge GST to customers, cannot sell outside Gujarat, and cannot claim input tax credit, including the GST on your MDR.
Look at your AIS. Log in to the income tax portal and check what is already reported against your PAN. If something is wrong or duplicated, file feedback.
Keep MDR records. Ask your bank or payment app how the MDR will be shown (reports say it will be deducted before the money reaches your account) and ask for a GST tax invoice each month. MDR is a deductible expense, and for regular GST-registered shops the GST on it is usually claimable as credit.

I have been under-reporting. What now?

Many small business owners are in this position without any bad intention. They started small, business grew through UPI, and nobody told them the rules had moved. The worst thing to do is wait for the department to write first.

If you should have been registered for GST earlier, registering now and paying tax on your sales going forward puts you in a far stronger position than being found through a data match. Our note on GST registration documents and biometric verification explains the process. On the income tax side, if last year's return understated income, an updated return (ITR-U) lets you correct it by paying tax, interest and an additional amount, which is still much cheaper than the penalties that follow a notice. See when ITR-U is the option left. Every case is different, and the order in which you fix things matters, so take advice before you file anything.

What we do for you

Reconcile your bank and UPI statements with your books and your filed returns
Tell you clearly whether you have crossed the GST limit, including exempt sales
Complete GST registration, including biometric Aadhaar authentication and document support
Advise on composition versus regular GST, based on your actual margins and customers
Check your AIS and file feedback where entries are wrong
File your income tax return under the presumptive scheme where it suits you, or with proper books where it does not
Prepare and file an updated return (ITR-U) where past income needs correcting
Draft replies to GST or income tax notices triggered by bank or UPI data
Handle monthly GST returns and bookkeeping so this never becomes a problem again

Gadhia Associate has been in practice since 2007 and has handled work for over 7,000 clients across Saurashtra and Gujarat, with a 5.0 Google rating from more than 100 reviews. Shopkeepers, wholesalers and small manufacturers from Junagadh, Keshod, Veraval, Gir Somnath, Amreli and Porbandar come to our Junagadh office, where same-day appointments are available. The work can equally be done digitally for businesses anywhere in India. Fixed-fee and monthly plans are available.

Before the MDR starts, get a simple check done on your UPI receipts and GST position. Call or WhatsApp +91 82005 28355, or message us on WhatsApp, or visit our Junagadh office. The first consultation is free.

Frequently asked questions

Is there a UPI tax from 15 October 2026?

No. There is no tax on UPI payments. From 15 October 2026, banks and payment apps may charge shops an MDR of up to 0.4% on UPI payments above Rs 2,000, capped at Rs 300. Customers pay nothing extra.

Will I pay a charge on a UPI payment of Rs 2,000 or less?

No. Payments of up to Rs 2,000 each are free by law under the Finance Ministry notification of 14 September 2026. The Rs 2,000 limit is per payment, not per day.

Does the customer pay the 0.4%?

No. MDR is paid by the merchant to its bank or payment provider. Merchants are not allowed to add it to the customer's bill.

Is there any cap on UPI MDR?

Yes. The MDR is capped at Rs 300 per payment, which is reached at a payment of Rs 75,000.

Is GST charged on UPI payments above Rs 2,000?

No. In April 2025 the Finance Ministry said claims of GST on UPI payments above Rs 2,000 were false, and that is still the position. GST at 18% applies only to the MDR fee the shop pays, not to the payment amount.

I am a small shop. Am I exempt from MDR?

Small merchants in the P2PM category who receive up to Rs 1 lakh a month through a UPI QR code stay at zero MDR. If you cross Rs 1 lakh a month for three months in a row, your bank can move you to the regular category. Reports say NPCI is also considering a wider exemption for businesses with turnover up to Rs 40 lakh a year. Ask your bank or payment app how your QR code is classified.

Can UPI payments lead to a GST notice even if I am not registered?

Yes. If your UPI and bank receipts show turnover above the registration limit, the department can issue a notice asking why you did not register, and demand tax with interest and penalty.

Is MDR a deductible expense for income tax?

Yes. It is a normal business expense if you maintain books. If you declare income under the presumptive scheme, your deemed profit already covers all expenses, so no separate deduction is claimed.

Position as of 10 October 2026. NPCI's MDR is officially due to start on 15 October 2026. The Supreme Court refused to stay it on 28 September 2026, and the case is pending. News reports on 8 and 9 October said NPCI was considering moving the start to 1 January 2027, so check the latest NPCI announcement. GST limits, presumptive rates and procedures change through notifications, and the Income-tax Act, 2025 has renumbered income tax provisions from 1 April 2026; the older section numbers are mentioned because that is how people still search for them. Confirm the current position before acting.