UPI Charges From October 15: Will Festive Shopping Get Costlier? Retailers Warn of Price Hikes

India's festive shopping season could face a fresh pricing challenge after the introduction of a 0.4% Merchant Discount Rate (MDR) on specified high-value UPI payments. While customers will not be allowed to pay the MDR directly, retailers and apparel manufacturers have raised concerns that the additional payment cost could eventually translate into higher product prices or lower festive discounts.

The new UPI MDR framework will come into effect from October 15, 2026. Under the standard merchant-payment structure, a 0.4% MDR will apply to eligible UPI transactions above ₹2,000, with the charge capped at ₹300 for transactions of ₹75,000 or more.

Will retailers increase prices after the new UPI charge?

Retailers and apparel manufacturers have warned that the new MDR could put additional pressure on already tight margins during the crucial festive shopping period.

According to industry reports, some retailers and brands are considering changes to pricing or festive discounts rather than imposing a separate UPI surcharge on customers. The concern is particularly relevant for categories where consumers routinely make purchases above ₹2,000 in a single transaction.

A representative of a major department store chain said the impact could become more visible during festive shopping because customers often combine multiple purchases into a single high-value transaction. Brands selling through the chain have reportedly started signalling potential price increases or reductions in discounts.

This does not mean every retailer will raise prices. The actual impact will depend on how individual businesses absorb the additional cost, adjust margins or alter promotional offers.

Government says customers cannot be charged MDR directly

The government has made its position clear: MDR is a merchant-side charge and cannot be passed directly to consumers as a UPI fee.

Banks have been advised to ensure that merchants do not transfer the MDR to customers, while UPI app providers cannot impose separate platform or hidden charges on users for these transactions.

Therefore, a retailer cannot simply add a line saying "UPI charge" or "MDR fee" to a customer's bill because the customer chose to pay through UPI.

However, the industry concern is about an indirect impact. Retailers could potentially review product pricing, margins or discounts to absorb the cost.

What exactly changes from October 15?

Under the new framework:

0.4% MDR will apply to eligible UPI payments to merchants above ₹2,000.

The MDR will be capped at ₹300 for transactions of ₹75,000 or more.

UPI payments between individuals will remain free.

Merchant payments up to ₹2,000 will remain free.

Eligible small merchants receiving up to ₹1 lakh a month through QR-based UPI payments will continue to receive zero-MDR treatment.

Certain essential sectors, including railways, telecom, insurance and fuel, will have a separate flat MDR structure.

The government estimates that approximately 96% of merchant UPI transactions will remain unaffected, because they either fall below the ₹2,000 threshold or qualify for the zero-MDR framework.

Will festive discounts become smaller?

This could be one of the more visible effects for consumers.

Instead of adding a separate UPI fee, retailers could potentially adjust promotional pricing. For example, a retailer facing higher payment-processing costs may Select to offer a slightly smaller discount on a product rather than increase the displayed price or charge customers separately for UPI.

Industry representatives have already raised concerns that brands could reduce festive offers or increase prices as they attempt to protect margins.

However, such pricing decisions would be business-specific and are not mandated by the new UPI rules.

Could the cash era return?

Retailer associations have warned that the new MDR could encourage some businesses, particularly smaller merchants operating on thin margins, to favour cash payments for larger purchases.

The Retailers Association of India has raised concerns that the additional cost could reverse some of the progress made by digital payments and encourage merchants to reconsider how they accept high-value transactions.

The Clothing Manufacturers Association of India has also expressed concern about the timing of the MDR introduction, arguing that the festive season is particularly important for merchants, retailers and consumer-facing businesses trying to improve demand and margins.

Still, a broad return to cash is not certain. UPI remains free for P2P payments and most merchant transactions, while digital payments continue to offer convenience, speed and transaction records.

What does the new UPI MDR mean for shoppers?

For consumers, the most important point is that there is no direct UPI payment fee under the new framework.