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UPI Charges Update: 0.4% MDR on Payments Above ₹2,000 Deferred Until After Diwali

Posted on 13th Oct 2026 03:04 pm by rohit kumar

The proposed 0.4% Merchant Discount Rate (MDR) charge on select UPI payments above ₹2,000 has been deferred until after Diwali, offering temporary relief to merchants ahead of the festive shopping season. The National Payments Corporation of India (NPCI) had originally scheduled the new framework to take effect on October 15, 2026. A revised implementation date has not yet been announced. Source: Business Standard

 

The postponement follows concerns raised by traders, retailers and payment industry participants about introducing transaction processing charges during a period when consumer spending and digital payments typically rise. The proposed fee structure remains in place for now, but its implementation has been pushed beyond the festival.

 

The change does not mean that customers will start paying a new UPI transaction fee. Under the announced framework, MDR is a charge paid by eligible merchants within the payment ecosystem, while person-to-person UPI transfers and eligible small-value merchant payments will continue to remain free. Source: Ministry of Finance

 

UPI MDR Charges: What Has Changed?

 

The new MDR framework was scheduled to begin on October 15. NPCI has now postponed its implementation until after Diwali, with the fresh date to be notified separately.

 

Here are the key points:

 

Implementation postponed: The proposed MDR framework will take effect after Diwali, rather than October 15.

 

0.4% merchant charge: Eligible person-to-merchant UPI transactions above ₹2,000 will attract a 0.4% MDR.

 

Customers remain exempt: The charge is intended to be borne by merchants, not directly collected from customers.

 

Small merchants remain protected: Eligible merchants covered by the zero-MDR framework will continue to be exempt.

 

₹300 cap: The MDR on eligible transactions of ₹75,000 or more is capped at ₹300 per transaction.

 

No revised date yet: The new implementation date has not been officially announced.

 

The deferment provides more time for merchants and payment service providers to prepare for the revised payment-processing framework.

 

UPI MDR Charge Structure: How Much Will Merchants Pay?

 

Under the proposed rules, the MDR depends on the transaction amount and the merchant or transaction category.

 

UPI transaction category

 

Proposed MDR treatment

 

Person-to-person transfers

 

Free

 

Eligible merchant payments up to ₹2,000

 

Free

 

Eligible regular merchant payments above ₹2,000

 

0.4% MDR

 

Eligible payments of ₹75,000 or more

 

MDR capped at ₹300

 

Specified essential-sector transactions above ₹2,000

 

Flat ₹5 per transaction

 

Eligible capital-market transactions

 

0.02% MDR, capped at ₹300

 

The special flat-fee category includes specified transactions in sectors such as railways, telecommunications, insurance and fuel. The capital-market category has a separate rate under the published framework. Exact treatment depends on the transaction classification and applicable rules. Source: Ministry of Finance

 

Why Has NPCI Deferred UPI Charges Until After Diwali?

 

The festive season is an important period for retail businesses, with consumers spending on clothing, electronics, jewellery, travel, gifts and household purchases. UPI is widely used for these payments, from neighbourhood shops to large retailers.

 

Merchant groups and other industry participants raised concerns that introducing MDR charges immediately before the festive rush could increase operating costs and complicate payment acceptance. Some traders also expressed fears that additional costs could eventually influence pricing or payment preferences.

 

By postponing implementation, NPCI has given the industry additional time to prepare. However, the deferment does not by itself cancel the proposed charges or change the announced rate structure.

 

Who Will Pay the UPI MDR Charge?

 

The proposed fee applies to specified person-to-merchant (P2M) transactions, rather than every UPI payment.

 

Large and eligible regular merchants: Qualifying merchant payments above ₹2,000 are proposed to attract a 0.4% MDR, subject to the applicable cap.

 

Eligible small merchants: Merchants covered by the zero-MDR small-merchant framework will remain exempt, including qualifying merchants receiving up to ₹1 lakh a month through the relevant UPI arrangement.

 

Customers making UPI payments: Customers will continue to use UPI without a direct MDR charge under the announced framework. The government has stated that merchants should not pass the MDR on to customers as a separate transaction fee.

 

Essential services and specified categories: Eligible transactions in designated sectors may receive a different rate, including the proposed flat ₹5 fee for specified essential-sector payments above ₹2,000.

 

Merchants should confirm their classification with their acquiring bank or payment service provider before the new framework takes effect.

 

What Is the Merchant Discount Rate (MDR)?

The Merchant Discount Rate is a fee associated with accepting and processing digital payments. It is paid by a merchant to the acquiring bank or payment ecosystem for handling a transaction.

 

MDR can help cover payment processing, banking infrastructure, network operations and related services. Its treatment varies by payment method and the applicable regulatory framework.

 

For years, ordinary UPI payments have operated under a zero-MDR framework. The newly announced proposal introduces charges for selected higher-value merchant transactions while retaining exemptions for person-to-person transfers, small-value merchant payments and qualifying small merchants.

 

The key distinction is that MDR is a merchant-side payment processing fee, not a universal charge on every UPI transaction.

 

Impact on Small Businesses and Retailers

 

The proposed exemptions are intended to protect eligible small merchants from additional payment acceptance costs. This is particularly relevant for local shops, street vendors and small businesses that rely on QR-code payments.

 

Larger merchants processing many high-value UPI transactions could face higher payment-processing expenses once the framework is implemented. The effect on individual businesses will depend on transaction sizes, the proportion of eligible payments, their merchant classification and the applicable fee rules.

 

Some traders have argued that the charges could affect the attractiveness of UPI acceptance or lead to changes in payment behaviour. However, the actual impact will become clearer only after the rules are implemented and merchant responses can be assessed.

 

UPI's Growing Role in India's Digital Economy

 

UPI has become a major part of India's digital payments infrastructure, supporting payments between individuals and transactions at businesses of different sizes.

 

According to the Ministry of Finance, approximately 55.49 crore users were onboarded on UPI as of June 2026. The scale of adoption makes payment pricing and merchant acceptance costs important issues for businesses, banks and payment service providers. Source: Press Information Bureau

 

The government has also used incentive schemes to support the digital payments ecosystem, particularly for small merchants. The policy challenge is to sustain payment infrastructure while keeping everyday digital transactions accessible.

 

When Will the New UPI MDR Charges Start?

 

The new framework was originally scheduled to take effect on October 15, 2026. NPCI has now deferred implementation until after Diwali, but a specific replacement date has not been announced.

 

Until an official update confirms the revised date, merchants and customers should avoid treating a particular post-Diwali date as final.

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