Customers never pay MDR directly, even on chargeable transactions. It's settled between the merchant's bank and the payment ecosystem. If a merchant asks you to pay extra or split a payment because of this, that goes against RBI/NPCI's rules. Banks have been told merchants must not pass MDR on to customers.
Small P2PM merchants stay at zero MDR on every transaction, of any size, as long as total UPI QR receipts stay at or under ₹1,00,000 for that calendar month. Crossing the limit mid-month means transactions after that point (above ₹2,000 each) start attracting the standard MDR. It isn't retroactive on what you already received.
Merchant Discount Rate (MDR) is the transaction fee or service charge that a business or merchant pays to their acquiring bank or payment service provider (PSP) for processing digital payments, such as UPI, debit cards, or credit cards.
While standard customer-to-customer transfers and small transactions remain free, the newer framework introduces structured, tiered fee updates for high-value commerce to sustain and maintain the digital payments infrastructure.