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From 15 October 2026 a P2PM small merchant stays zero-MDR only while inward UPI QR receipts are at or below ₹1 lakh per month; three consecutive months above that moves it into chargeable P2M (FAQ Q29). No merchant previously had to monitor this.
Each month, total inward UPI credits from the bank statement, separate QR-labelled receipts from P2P credits and other rails, compare to ₹1 lakh, and maintain a consecutive-months-over counter with a documented reset interpretation.
Monthly threshold ₹1,00,000; alert at 2 consecutive months over; flag for P2P credits landing in the same account; flag for multiple QR codes or accounts; PIL-status watch for 15 October 2026 framework.
Month-by-month threshold register with streak count, early-warning alert before month three, a list of ambiguous credits to raise with the acquiring bank, and a pre-graduation checklist for 0.4% MDR above ₹2,000.
Last verified 17 September 2026. The notified framework, effective 15 October 2026, is currently subject to a pending Supreme Court challenge (PIL filed 16 September 2026). Everything below describes the notified position as of that date.
Until now, a small merchant accepting UPI had nothing to monitor: bank-account UPI carried zero MDR at every ticket size. From 15 October 2026 that changes. The small-merchant (P2PM) exemption survives, but it is conditional on a monthly volume test, and breaching it for long enough moves you into the chargeable P2M category. This guide sets out how to track that test month by month. For the full rate schedule, see the UPI MDR 2026 flagship.
What exactly does the ₹1 lakh test measure?
The NPCI FAQ dated 15 September 2026, hosted on financialservices.gov.in, sets out four points that matter here:
- Threshold: a P2PM merchant stays zero-MDR while inward UPI QR receipts are at or below ₹1 lakh per month (Q23, Q24, Q28).
- No GST registration needed to qualify (Q23, Q24, Q28).
- Graduation: once inward UPI credits exceed ₹1 lakh per month for three consecutive months, the merchant is moved into P2M (Q29).
- Legal chain: Taxation and Other Laws (Amendment) Act 2026 (assent 17 August 2026), Ministry of Finance notification 14 September 2026, NPCI FAQ 15 September 2026.
What the FAQ does not say is equally important. It is silent on whether “month” means calendar month or a rolling 30-day window, who notifies the merchant of graduation, and whether or how a graduated merchant can revert to P2PM. Do not fill those gaps with assumptions. Write down the reading you apply, and confirm it with your acquiring bank.
How do you track it month by month?
Keep a simple register. The table below is illustrative only — the monthly totals are invented to show the mechanics.
| Month (illustrative) | Inward UPI QR credits | Above ₹1 lakh? | Consecutive months over | Status |
|---|---|---|---|---|
| Month 1 | ₹1,12,000 | Yes | 1 | Watch |
| Month 2 | ₹1,08,500 | Yes | 2 | Alert — one month from trigger |
| Month 3 | ₹96,000 | No | 0 (reset)* | P2PM |
| Month 4 | ₹1,04,000 | Yes | 1 | Watch |
| Month 5 | ₹1,21,000 | Yes | 2 | Alert |
| Month 6 | ₹1,15,000 | Yes | 3 | Graduation trigger per Q29 |
*The reset in Month 3 is the merchant’s own conservative interpretation. The FAQ does not state reset rules; confirm your reading with your acquiring bank.
Two operating rules follow from the table. First, set the alert at two consecutive months over, not three — by the time month three closes, the trigger has already been met. Second, a month just over the line (₹1,04,000 in Month 4) counts the same as one far over it; there is no tolerance band in the FAQ.
What should you reconcile each month?
The threshold is only as reliable as the number feeding it. Each month:
- Pull total UPI credits from the bank statement for every account linked to a merchant QR.
- Separate QR-labelled receipts from other credits using the narration. The FAQ threshold refers to inward UPI QR receipts.
- Flag P2P credits into the same account. Q29 speaks of inward UPI credits, while Q23–Q28 speak of QR receipts. Whether personal P2P transfers landing in a merchant account count toward the test is a known ambiguity — flag the amount, do not resolve it yourself, and raise it with the bank.
- Note multiple QR codes or accounts. Whether receipts across several QRs or accounts are aggregated is a question to put to your bank, not something the FAQ answers.
- Tie the register to the ledger so the monthly figure is auditable if the categorisation is ever disputed.
This is the same discipline as the six checks in MDR fee reconciliation, applied one step earlier — before any fee exists.
What changes on graduation to P2M?
Once categorised as P2M, the notified schedule applies:
| Ticket size | Notified MDR |
|---|---|
| At or below ₹2,000 | 0% |
| Above ₹2,000 to below ₹75,000 | 0.4% |
| At or above ₹75,000 | 0.4%, capped ₹300 per transaction |
Worked examples from the FAQ: ₹12 on ₹3,000, ₹200 on ₹50,000, ₹300 on ₹1,00,000. Business Standard (16 September 2026) reports 18% GST applies on the MDR itself. Sector overrides may apply — railways, telecom, insurance, fuel and utilities pay a flat ₹5 above ₹2,000 (Q33, Q39–Q41); education gets “flat-fee structures or capped processing rates” (Q42), with no figure stated.
One rule does not bend: merchants cannot surcharge the MDR to customers (Q34). The cost has to be absorbed or priced in, not added at checkout. UPI AutoPay collections remain exempt (Q22).
From the first settlement after graduation, verify every deduction against these bands. That is where a payment gateway reconciliation process earns its keep — catching MDR charged on sub-₹2,000 transactions, or charged before categorisation actually changed.
What if the Supreme Court stays the framework?
The notified framework, effective 15 October 2026, is currently subject to a pending Supreme Court challenge (PIL filed 16 September 2026). If it is stayed or struck down, the pre-15-October zero-MDR baseline continues and the monitoring obligation falls away. Keep the register running regardless: it costs little, and it leaves you ready for whichever outcome the Court reaches.
Continue reading
- ▸ NPCI FAQ dated 15 September 2026 — Merchant Discount Rate (MDR) on Select UPI (P2M) Transactions — Primary operative source hosted on the Department of Financial Services site. Establishes the P2PM exemption at or below ₹1 lakh/month inward UPI QR receipts with no GST registration required (Q23, Q24, Q28), graduation after three consecutive months above ₹1 lakh (Q29), the 0.4% MDR above ₹2,000 capped ₹300 at or above ₹75,000, and the no-surcharge rule (Q34).
- ▸ Section 10A, Payment and Settlement Systems Act 2007 (as amended by the Taxation and Other Laws (Amendment) Act 2026) — Presidential assent 17 August 2026; Ministry of Finance notification 14 September 2026; effective 15 October 2026.