Small merchants (P2PM)Who it applies to
P2PM explained: the ₹1 lakh monthly exemption for small merchants
Who qualifies for the P2PM exemption? Merchants taking up to ₹1 lakh a month over QR into a personal account pay zero UPI MDR - the conditions, the three-month rule, examples.
Updated: 7 min readहिन्दी
By upicharges.in editorial desk · Published:
The short answer
What is the P2PM exemption, and who gets it?
Small merchants who take up to ₹1 lakh a month over UPI QR straight into their own personal account are P2PM, and their MDR is zero (FAQ Q23, Q24).
It follows the account category, not the payment size - so even payments above ₹2,000 cost nothing (Q26).
The new UPI charges come with one large exemption, and it covers a very big share of India's shopkeepers: the vegetable seller, the tea stall, the small kirana, the tailor, the street-food cart. If you are one of them, the headline number - 0.4% on payments above ₹2,000 - may simply not apply to you. This article explains who qualifies, the one subtle point that matters most, what happens in a busy month, and what is still not settled.
If you only want your own answer, the eligibility check takes three questions. If you want to understand the exemption properly - so that you can spot a wrong deduction later - read on. Every rule carries its FAQ question number so you can check it in the official document.
What P2PM means
P2PM stands for Person-to-Person-Merchant. The FAQ describes it as a special account category that NPCI created for small vendors who receive payments directly into their own personal bank accounts FAQ question FAQ Q24. It sits between two familiar things: a person receiving money from another person (P2P), and a formal shop with a merchant account (P2M).
The FAQ gives the reason for the category too: it is meant to bring the informal, unorganised retail sector into digital payments without taking a cut of their takings FAQ question FAQ Q23.
The two conditions
To be P2PM, both of these must be true FAQ question FAQ Q23, Q24:
- The money comes in over UPI QR, straight into your personal account. Not a current account, not a merchant account opened through a payment company - your own savings account.
- You receive up to ₹1 lakh a month through UPI. Exactly ₹1 lakh still qualifies; the condition is "up to".
When both hold, your MDR is zero - and the FAQ calls this a mandatory zero MDR FAQ question FAQ Q24. It is not a discount your bank may choose to offer. It is the rule.
A few things that do not matter:
- Your cash sales. The limit is about UPI receipts. Cash is not part of it.
- GST registration. You do not need to be registered for GST to get the exemption. The FAQ says eligibility depends on the monthly collection limit and how your account is categorised, whatever your tax registration status FAQ question FAQ Q28.
- Where you are. Rural and semi-urban P2PM merchants get the same zero MDR as anyone else FAQ question FAQ Q30.
Category decides, not the amount
This is the point most people get wrong, so it is worth slowing down. MDR follows how your account is categorised, not the size of each payment FAQ question FAQ Q26. The FAQ says it directly: receiving a payment above ₹2,000 does not create a charge for a small merchant in an exempt category like P2PM.
So a P2PM merchant does not pay on a large payment, even though a regular (P2M) merchant would.
The second example is the one to remember. Size alone does not decide it. Which account the money lands in is the first question, and the more important one.
Is there anything you need to do?
No. The FAQ is clear that existing QR codes keep working, and that merchants do not need to replace, re-register or change their QR stands or soundboxes, visit a bank branch or update software FAQ question FAQ Q25. Banks and payment companies identify P2PM merchants themselves FAQ question FAQ Q29.
That also means: if anyone offers you a "new P2PM QR" or asks for a fee to "register for the exemption", check with your bank before you pay anything. The rules do not ask for it.
If a month goes over ₹1 lakh
Many small shops have a festive month that is much bigger than the rest. The FAQ explains how this is handled, and the answer is reassuring. Banks and payment companies run a monthly check on the UPI money coming in to merchants in the P2PM category. A merchant is moved to the P2M category only when UPI receipts are above ₹1 lakh a month for three months in a row FAQ question FAQ Q29.
The flip side is worth knowing too. If your shop has grown and now takes well over ₹1 lakh every month, expect to be moved to P2M. From then on, payments above ₹2,000 attract MDR - 0.4%, capped at ₹300 a payment FAQ question FAQ Q26, Q32. Smaller payments stay free.
The small-merchant fund
Alongside the exemption, the FAQ describes a dedicated fund paid for out of MDR. It is meant to support digital payment infrastructure in Tier 3 to 6 centres, including the north-eastern states, Jammu and Kashmir, and Ladakh; to include central government schemes such as PM SVANidhi and PM Vishwakarma in Tier 1 and 2 centres; and to help banks and payment companies onboard small merchants and encourage UPI use among them FAQ question FAQ Q8, Q9.
The decision in one picture
The two conditions and the category rule fit into a short decision tree:
Common questions from small merchants
"I have two QR codes - one into savings, one into current." The FAQ ties the exemption to UPI money that arrives over QR into a personal account. Payments into the current account are P2M payments. If you are unsure how your bank categorises each one, ask it directly.
"My collections are ₹98,000. Should I worry about crossing ₹1 lakh?" Not month to month. One month above the limit does not change your category; three months in a row does FAQ question FAQ Q29.
"I am P2PM but I see a charge on my statement." No MDR is due from a P2PM merchant FAQ question FAQ Q23, Q24. Download your settlement report as a CSV, put it through the settlement check choosing "Small merchant (P2PM)", and take the PDF it produces to your bank or payment company. How to read the report yourself: How to read your UPI settlement statement and spot a wrong deduction.
"Can I charge my customers something instead?" There is nothing to recover - you pay no MDR. And no merchant may pass MDR on to customers anyway FAQ question FAQ Q34. The detail: Can a shopkeeper charge the 0.4% to customers? What the rules actually say.
A two-minute check
- Find out which account your QR pays into - savings or current.
- Add up your UPI receipts for each of the last three months.
- If the money lands in savings and each month is ₹1 lakh or less, you are P2PM: zero MDR FAQ question FAQ Q23, Q24.
- If one month was higher but the others were not, you are still P2PM FAQ question FAQ Q29.
- Keep your September and October statements, so you can check nothing was deducted after 15 October FAQ question FAQ Q5.
For the step-by-step version with more shop examples, see Does the new UPI MDR apply to my shop? A step-by-step check. For everything else - the ₹300 cap, the flat ₹5 sectors, AutoPay - the whole picture is in UPI charges from 15 October 2026: the complete guide for merchants.
Common questions
What does P2PM stand for?
Person-to-Person-Merchant: an account category NPCI created for small vendors who receive payments directly into their own personal bank accounts (FAQ Q24).
Do I need GST registration to get the P2PM exemption?
No. Eligibility depends on the ₹1 lakh monthly limit and how your account is categorised, not on tax registration (FAQ Q28).
What if my UPI collections cross ₹1 lakh in one month?
Your category does not change. A P2PM merchant is moved to P2M only after three consecutive months above ₹1 lakh (FAQ Q29).
Does a P2PM merchant pay MDR on a ₹5,000 payment?
No. MDR follows the account category, not the payment size, so a P2PM merchant pays nothing at any amount (FAQ Q26).
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upicharges.in editorial desk — Checks every article against the NPCI/DFS FAQ of 15 September 2026
Every fact in this article comes from the NPCI/DFS FAQ of 15 September 2026. Read the official NPCI/DFS FAQ