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UPI 0.4% Charge Deferred Until Diwali: What Changes for Payments Above ₹2,000?

Posted on 14th Oct 2026 01:50 pm by rohit kumar

The proposed Merchant Discount Rate (MDR) on select Unified Payments Interface (UPI) transactions has been postponed until after Diwali, providing temporary relief to merchants during the festive shopping season. The new fee structure was originally scheduled to take effect on October 15, 2026. The National Payments Corporation of India (NPCI) has said the revised implementation date will be announced separately.

 

Under the proposed framework, eligible person-to-merchant (P2M) UPI payments exceeding ₹2,000 would attract a merchant fee of 0.4%, subject to applicable caps and sector-specific rates. However, the charge is intended for merchants rather than customers. Person-to-person (P2P) UPI transfers and eligible small-merchant transactions are set to remain exempt. Source: Livemint and Ministry of Finance release.

 

UPI MDR Charge Update: What Has Changed?

 

The MDR rollout was postponed shortly before its planned October 15 start. The decision comes as retailers prepare for the festive period, when purchases of clothing, electronics, jewellery, household goods and other products typically increase.

 

Trade bodies and payment industry participants had raised concerns about introducing a new payment-cost structure during a busy shopping season. The delay gives merchants, banks and payment service providers additional time to prepare for the revised framework.

 

Important: The deferment does not mean the proposed fee has been cancelled. The new implementation date remains subject to a separate announcement by NPCI. Source: The Economic Times.

 

Three Key Points of the Proposed UPI MDR Framework

 

1. A 0.4% fee on eligible merchant payments above ₹2,000

 

Under the announced framework, eligible UPI payments made by customers to merchants that exceed ₹2,000 would attract an MDR of 0.4%. The fee would be deducted from the merchant's proceeds through the payment ecosystem, subject to the applicable rules and exemptions.

 

2. A maximum charge of ₹300 on large transactions

 

For eligible transactions of ₹75,000 and above, the proposed MDR is capped at ₹300 per transaction. This means the percentage-based calculation would not continue increasing beyond the stated cap.

 

3. A flat ₹5 fee for specified sectors

 

Certain essential or thin-margin sectors—including railways, telecommunications, insurance and fuel—are covered by a proposed flat MDR of ₹5 on eligible payments above ₹2,000. The exact treatment depends on the sector and transaction category specified in the framework.

 

The Ministry of Finance has also stated that payments involving capital-market services, such as mutual funds and securities, fall under a separate proposed rate structure

 

Will Customers Have to Pay UPI Transaction Charges?

 

The proposed MDR is a merchant-side charge, not a fee intended to be collected directly from customers making UPI payments.

 

According to the Ministry of Finance's published framework, banks have been advised to ensure merchants do not pass MDR charges on to customers. UPI application providers are also prohibited under the stated framework from imposing platform fees or hidden charges.

 

Person-to-person transfers—including payments between individuals—are set to remain free regardless of the amount. Merchant payments of up to ₹2,000 are also exempt from MDR, as are qualifying transactions received by small merchants under the applicable zero-MDR category. Source: Ministry of Finance.

 

What Is the ₹1 Lakh Exemption for Small Merchants?

 

The proposed framework protects qualifying small merchants, including street vendors and neighbourhood shops, that receive up to ₹1 lakh per month through UPI QR codes under the specified person-to-person-merchant (P2PM) category.

 

These eligible merchants are set to continue receiving payments without MDR, including transactions above ₹2,000. The exemption is linked to the merchant's category and eligibility rules, so it should not be interpreted as a blanket exemption for every business whose total sales are below ₹1 lakh.

 

NPCI's published guidance also indicates that a merchant consistently exceeding the monthly threshold for three consecutive months may be moved into the applicable paying category. Merchants should confirm their classification with their acquiring bank or payment provider.

 

Why Was the UPI MDR Rollout Deferred Until After Diwali?

 

Diwali is one of India's major retail periods, with businesses preparing for higher customer footfall and increased digital payments. Introducing a new fee structure during this period could create additional operational work for merchants and payment providers.

 

Trade associations and businesses raised concerns about the timing, including the possibility of higher operating costs for merchants and pressure on small-business margins. The postponement gives stakeholders more time to prepare and reduces the chance of disruption during the festive rush.

 

The deferral is a timing decision, however, and does not by itself establish whether the proposed rates or exemptions will change.

 

Nationwide Opposition to the Proposed UPI Charges

 

The planned MDR framework drew objections from sections of the trading community and opposition leaders. Business associations expressed concerns about the potential impact on merchant costs, particularly for businesses operating on narrow margins.

 

Some traders have warned that additional transaction expenses could affect their willingness to accept digital payments or put pressure on prices. These are concerns raised by stakeholders, rather than proof that the charges will necessarily reduce UPI usage or increase consumer prices.

 

The official framework says MDR is intended to support banks, payment service providers and UPI application providers in maintaining and expanding payment infrastructure. It also says the fee should not be passed on to customers.

 

What Is the Merchant Discount Rate (MDR)?

 

The Merchant Discount Rate, commonly known as MDR, is a fee associated with processing a merchant's digital payment. Depending on the payment method, it may be distributed among banks, payment networks, payment service providers and other participants in the transaction ecosystem.

 

MDR helps support the infrastructure used to process payments, maintain security and provide payment services. It is distinct from a tax collected by the government.

 

For the proposed UPI framework, the Ministry of Finance has clarified that MDR is not a government or NPCI levy collected as tax. Instead, the amount is distributed among participants in the payment ecosystem.

 

How Significant Are UPI Payments Above ₹2,000?

 

Although smaller payments make up the vast majority of UPI merchant transactions by number, larger transactions can account for a substantial share of the total value processed. The distinction matters because a fee applied to a relatively small portion of transactions can still affect merchants handling high-value payments.

 

The Ministry of Finance has said approximately 96% of merchant transactions are expected to remain unaffected under the announced framework, owing to the ₹2,000 threshold and exemptions for eligible small merchants. This is an official estimate, and the actual impact will depend on transaction patterns and the final implementation arrangements. Source: Ministry of Finance.

 

Government Support for UPI Adoption

 

The government has previously used incentive schemes to encourage digital payments and wider UPI acceptance among small merchants. The long-term policy challenge is to maintain low-cost digital payments while ensuring that the banks and service providers supporting the system can fund its infrastructure, security and reliability.

 

The proposed MDR framework seeks to address the sustainability of payment services while keeping person-to-person transfers and qualifying small-merchant payments free. The impact will depend on how the framework is implemented and how merchants and payment providers respond.

 

When Will the UPI MDR Charge Come Into Effect?

 

The planned October 15, 2026 rollout has been deferred until after Diwali, which falls on November 8, 2026, according to the 2026 government holiday calendar. However, a specific implementation date has not yet been announced.

 

Merchants and payment providers should watch for the formal NPCI update before making changes to their systems or communicating a firm start date to customers. Until the revised date and any further instructions are confirmed, the post-Diwali timing should not be treated as a precise launch schedule.

 

For now, the key points are clear: the rollout has been postponed, the proposed standard MDR is 0.4% on eligible merchant payments above ₹2,000, and customers are not intended to bear the MDR directly. The final operational details and implementation date remain important developments to watch.

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