Indians Discuss Splitting UPI Payments to Avoid New MDR Charge

India’s decision to introduce a 0.4 percent Merchant Discount Rate on selected UPI payments above ₹2,000 has already produced a proposed workaround online: dividing a larger purchase into multiple payments of ₹2,000 or less.

Under the framework taking effect on October 15, 2026, eligible person-to-merchant transactions exceeding ₹2,000 will attract MDR. Payments at or below ₹2,000 remain free. This has led users and retailers to suggest that a ₹6,000 bill could be paid through three separate ₹2,000 transfers instead of one transaction.

However, reports that Indians are already bypassing the charge are premature because the new MDR has not yet taken effect. Payment splitting is currently an online proposal and an industry concern rather than an established nationwide practice.

The MDR is also not a direct tax on customers. It is a processing charge borne by qualifying merchants and shared among banks, payment applications and service providers. An 18 percent GST will apply only to the MDR amount—not to the entire purchase. GST-registered businesses can generally claim that amount as input tax credit.

For example, a ₹10,000 payment would generate ₹40 in MDR and ₹7.20 in GST on that fee. The customer is still supposed to pay only ₹10,000.

Retailers have warned that transaction splitting could create accounting problems, longer checkout times and possible under-reporting. Authorities may consequently issue technical or compliance rules for multiple payments connected to a single bill.

Person-to-person transfers, qualifying small merchants and ordinary merchant transactions of ₹2,000 or less will continue under the zero-MDR system. The government has also instructed banks to prevent businesses from directly passing the charge to customers.

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