Summary:
NPCI has postponed the proposed UPI merchant discount rate rollout until after Diwali 2026. The 0.4% fee on eligible merchant transactions above ₹2,000 remains proposed, while customers and exempt merchants retain zero-MDR treatment under the framework.
Why Has NPCI Delayed UPI MDR Charges?
The National Payments Corporation of India (NPCI) has pushed back the levy of merchant discount rate (MDR) charges on certain Unified Payments Interface (UPI) transactions until after Diwali. The announcement came on October 13, 2026, just two days before the new payment system was scheduled to go live on October 15.
The move offers a short break for retailers and businesses during the festive shopping season. The revised date of implementation will be announced separately by NPCI.
| Particulars | Details |
|---|---|
| Announcing body | National Payments Corporation of India (NPCI) |
| Original implementation date | October 15, 2026 |
| Revised implementation | Immediately after Diwali; exact date to be announced |
| Proposed MDR | 0.4% on eligible merchant UPI transactions above ₹2,000 |
| Maximum MDR | ₹300 per transaction |
| Person-to-person transfers | Zero MDR |
| Merchant payments up to ₹2,000 | Zero MDR under the framework |
| Eligible small merchants | Exempt under the applicable small-merchant framework |
| Immediate customer impact | No new customer fee under the proposed MDR framework |
| Main reason for delay | Festive-season considerations and time for merchants and payment providers to prepare |
The postponement was confirmed in NPCI’s reported statement on October 13. The new implementation date is to be notified separately.
Why did NPCI defer MDR implementation?
This comes after a meeting of the NPCI’s UPI and Services Steering Committee which discussed issues related to the implementation of the revised charging framework.
The peak festive shopping period saw several merchant associations and payment service providers raise concerns against the transaction charges.
Diwali is often associated with a rise in sales volumes, especially in electronics, apparel, jewelry and consumer goods.
'If we had put in extra payment costs in this time it could have impacted on merchant margins, particularly for those on low margins.
The delay also gives acquiring banks, payment aggregators and fintech companies more time to upgrade their billing systems and prepare for the new fee structure.
What Is An MDR And How Much Will Merchants Pay For It?
Merchant Discount Rate (MDR) is the fee charged by the merchant for enabling digital payments. This information is typically given to the banks and payment service providers that are involved in processing a transaction.
As per the proposed framework announced in September 2026, MDR of 0.4% would be applicable for UPI merchant payments above ₹2,000 with a cap of ₹300 per transaction.
The proposed structure is based on the following:
| Transaction Category | Proposed MDR |
| P2P (person to person) transfers | Nil |
| Merchant payments < ₹2000 | Nil |
| Merchant payments > ₹2000 | 0.4% |
| Maximum MDR per transaction | ₹300 |
| Small merchants with UPI transactions < ₹1 L per month | Exempt |
For example, a merchant payment of ₹5,000 will attract an MDR of ₹20 and payment of ₹10,000 will attract a charge of ₹40.
These are merchant fees, not a transaction fee to customers.
How Much MDR Would Merchants Pay?
Add these simple examples, assuming the standard proposed 0.4% rate applies:
| Eligible transaction value | Illustrative MDR |
|---|---|
| ₹3,000 | ₹12 |
| ₹5,000 | ₹20 |
| ₹10,000 | ₹40 |
| ₹50,000 | ₹200 |
| ₹75,000 | ₹300 |
| ₹1,00,000 | ₹300, capped |
These examples apply to eligible transactions under the standard rate. Exempt merchants and special transaction categories may be treated differently.
The issue with merchant associations
Merchant groups claim the proposed fees will raise operating costs, particularly for those companies that handle substantial volumes of digital payments.
A 0.4% transaction fee can cut into earnings when applied to large payment volumes, which can be an issue for retailers operating on slim margins.
Some businesses will try to pass some of their extra costs on to consumers by increasing the prices of their products. It could increase the cost to consumers indirectly.
Trade associations have also lobbied for higher exemption levels, graduated fees and fixed transaction charges for some business sectors.
However, the proposed framework seeks to limit the number of UPI transactions affected, with more than 95% of merchant payments by volume likely to continue to remain free of MDR.
What Does The Delay Mean For UPI Users?
The immediate impact for customers is minimal. The proposed MDR will not come into effect on 15 October and normal person to person transfer will continue to be exempted.
The majority of the new fees are for eligible merchant transactions paid for from bank accounts.
For banks and digital payments companies, MDR could be another source of revenues to offset increasing costs of payment processing, technology infrastructure and transaction security.
But the date of final implementation and the operational guidelines are important.
The NPCI decision provides merchants with more time to prepare and also allows festive transactions to continue without the new proposed charges. “The ultimate effect will be determined by the ultimate framework and how companies manage their cost of payments.”
