UPI has picked up more regulatory change in 2026 than most practising CAs have had time to fully absorb. A new merchant fee, a wallet interchange charge, higher payment limits for specific categories, and a mandatory second authentication factor have all arrived within months of each other.
Clients will ask about most of these, usually with half the story from a news headline. Here is what actually changed and how it affects advisory, GST compliance, and audit work for practice.
The MDR Framework and What It Means for Merchant Clients
From October 15, 2026, a Merchant Discount Rate of 0.4 percent applies to person to merchant UPI transactions above Rs. 2,000, capped at Rs. 300 per transaction for amounts of Rs. 75,000 and above.
This is a real cost line for merchant clients to budget for, though the government has explicitly barred passing it on to customers. Since over 95 percent of small retail transactions stay under Rs. 2,000, the practical impact is concentrated in clients with higher ticket sizes, such as wholesalers, service providers, and larger retailers.
GST Registration Triggers Hiding in UPI Collections
As UPI QR collections make a client’s actual turnover far more visible and traceable than cash ever was, this is a good moment to revisit GST registration thresholds with clients who collect primarily through UPI.
The threshold remains Rs. 40 lakh for goods and Rs. 20 lakh for services. A client whose UPI settlement statements quietly cross this line without registering risks notices and penalties later. Reconciling UPI settlement reports against GST returns periodically is a simple check worth building into routine compliance work.
The New Interchange Fee on Prepaid Wallets
NPCI has introduced a 1.1 percent interchange fee on UPI payments made through Prepaid Payment Instruments such as Paytm Wallet, Amazon Pay, or PhonePe Wallet, when the transaction value exceeds Rs. 2,000 at a merchant.
Clients who rely on payment aggregators or wallet based collection should be told this affects their effective settlement amount, even though it does not touch bank account to bank account UPI transfers.
Two Factor Authentication: A New Compliance Checklist Item
RBI’s Authentication Mechanisms for Digital Payment Transactions Directions, 2025 require two authentication factors from different categories for all domestic digital payments, including UPI, from April 1, 2026.
For CAs handling process reviews, internal financial controls, or advisory for clients running their own payment gateways or collection systems, this becomes a concrete item to verify during the next audit cycle, not just a banking sector update to skim past.
The “No Charges for UPI Users” Clarification Clients Keep Asking About
The Ministry of Finance clarified through a PIB release that ordinary UPI users are not charged anything under the new framework. The MDR and interchange fee are costs on the merchant or wallet side, not a tax on the payer.
A short, ready answer for clients confused by conflicting headlines: they may see a small MDR cost on receipts above Rs. 2,000 as a business, but their own customers pay nothing extra to use UPI.
Building This Into Client Advisory
None of these changes need a dedicated engagement to explain. They fit naturally into existing GST return reviews, internal control walkthroughs, and year end advisory conversations you are already having.
If your practice is also managing the current tax audit season, our piece on the Sep 30 tax audit deadline and CBDT’s stance on extensions covers where that stands right now. And for a broader look at how technology is reshaping the profession you are advising clients from within, our piece on the future of the CA profession in the AI era is worth a read.
Frequently Asked Questions
Does the new MDR apply to all UPI transactions?
No. It applies only to person to merchant transactions above Rs. 2,000, and only the merchant bears the cost. Person to person transfers and smaller transactions are unaffected.
How do UPI collections affect a client’s GST registration requirement?
UPI QR collections make turnover more traceable, so a client crossing Rs. 40 lakh for goods or Rs. 20 lakh for services through UPI receipts still needs GST registration, exactly as with any other sales channel.
What changed for clients using wallets like Paytm or PhonePe Wallet?
A 1.1 percent interchange fee now applies on UPI payments made through these prepaid wallets when the transaction exceeds Rs. 2,000 at a merchant, affecting the merchant’s effective settlement amount.
What should CAs check for clients running their own payment collection systems?
Confirm the system complies with RBI’s two factor authentication mandate for digital payments, effective April 1, 2026, as part of the next process or controls review.
Source: Ministry of Finance PIB release on UPI charges, RBI Authentication Mechanisms for Digital Payment Transactions Directions, 2025, and NPCI circulars on UPI, 2026.
