India’s planned merchant discount rate (MDR) on selected Unified Payments Interface (UPI) transactions has been deferred until after Diwali, the National Payments Corporation of India (NPCI) announced on October 13, 2026. The proposed 0.4% fee on eligible merchant payments above ₹2,000 was originally scheduled to take effect on October 15. NPCI has not yet announced a new implementation date.
The postponement comes during India’s busy festive shopping season, when consumers and businesses rely heavily on digital payments for purchases, travel, dining and other expenses. The delay gives merchants, banks and payment service providers additional time to prepare for the revised payment economics. The proposed framework is still intended to apply to specified merchant transactions, while ordinary person-to-person transfers and qualifying small-merchant transactions remain exempt.
Key Takeaways
- MDR rollout postponed: NPCI has deferred the planned October 15 implementation until after Diwali.
- Proposed rate remains 0.4%: The MDR applies to specified person-to-merchant UPI transactions exceeding ₹2,000.
- No revised date yet: NPCI will announce the new implementation date separately.
- Customers are not meant to pay the fee directly: MDR is payable by eligible merchants and cannot be separately passed on to customers under the framework.
- Exemptions remain important: Person-to-person payments, merchant transactions up to ₹2,000 and qualifying small merchants remain outside the standard charge.
- Payment companies need more time: The postponement gives banks, payment applications and merchants additional time to prepare their systems.
NPCI Defers UPI Merchant Fee Until After Diwali
NPCI’s decision changes the immediate timeline for a significant proposed adjustment to India’s digital payment ecosystem. The 0.4% MDR was scheduled to begin on October 15, but the UPI and Services Steering Committee decided to postpone its introduction until after the Diwali festival.
The decision follows requests from merchants and payment industry participants for additional time to prepare for the new fee structure. The rollout had generated questions about how different merchant categories would be treated, how charges would be calculated and how payment systems would handle the changes.
The festive period adds another consideration. Businesses typically experience increased transaction volumes as consumers make purchases for celebrations, gifts, travel and household needs. Introducing a new fee structure during this period could require merchants and payment providers to make operational changes while processing elevated transaction volumes.
The postponement does not mean that NPCI has withdrawn the proposed MDR framework. Instead, the implementation has been moved beyond Diwali, with the exact date still to be announced.
For merchants, the immediate implication is that the planned October 15 start date will not apply. For payment providers, the additional time can be used to prepare transaction classification, reconciliation and settlement processes.
What Is MDR and How Will It Work on UPI?
The merchant discount rate is a fee associated with processing certain digital payments. Under the proposed UPI framework, eligible merchants would pay MDR on specified person-to-merchant transactions above ₹2,000.
The fee is intended to support participants in the payment ecosystem, including banks, payment service providers and UPI application providers. It is not a tax collected by the government.
Under the standard proposed rate, the MDR is 0.4% of the eligible transaction value, subject to a maximum charge of ₹300 for transactions of ₹75,000 or more.
| UPI transaction value | Proposed standard MDR | Calculation |
|---|---|---|
| ₹1,500 | No MDR | Below the ₹2,000 threshold |
| ₹2,000 | No MDR | Threshold transaction remains exempt |
| ₹5,000 | ₹20 | 0.4% of ₹5,000 |
| ₹10,000 | ₹40 | 0.4% of ₹10,000 |
| ₹50,000 | ₹200 | 0.4% of ₹50,000 |
| ₹75,000 | ₹300 | Reaches the transaction cap |
| ₹1,00,000 | ₹300 | Capped at ₹300 |
These examples illustrate the standard proposed rate. Other transaction categories have separate rates or exemptions, and the rollout has been deferred until after Diwali.
For example, if an eligible merchant receives ₹10,000 through a covered UPI transaction, the standard proposed MDR would be ₹40. The amount is a merchant-side payment-processing cost, not an additional amount that the customer is supposed to pay at checkout.
The actual treatment depends on the transaction category and the applicable exemptions. Merchants should therefore avoid assuming that every payment above ₹2,000 will attract the standard 0.4% rate.
Which UPI Transactions Will Remain Free?
The proposed framework distinguishes between payments to merchants and transfers between individuals. This distinction is important because UPI is used for everything from splitting household expenses to paying retailers and service providers.
Person-to-person transfers
Transfers between individuals, such as sending money to a family member or reimbursing a friend, remain free irrespective of the amount transferred.
The MDR framework is directed at specified merchant transactions rather than ordinary person-to-person transfers.
Merchant payments up to ₹2,000
Merchant transactions of ₹2,000 or less remain outside the standard MDR. This means that everyday low-value payments, including many purchases at shops and food outlets, are not subject to the proposed 0.4% fee.
Qualifying small merchants
Small merchants covered by the zero-MDR framework also remain exempt. Under the announced framework, eligible merchants receiving up to ₹1 lakh per month through UPI QR codes directly into their accounts can qualify for zero MDR.
This exemption is significant for street vendors, small retailers and other businesses that depend on low-cost digital payment acceptance.
Special transaction categories
The framework also provides different treatment for certain categories rather than applying the standard rate uniformly. Payments involving specified essential sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, have a proposed flat MDR of ₹5 for covered transactions above ₹2,000. Certain capital-market transactions have a separate rate of 0.02%, capped at ₹300.
The exact classification of a transaction is therefore important. Businesses should confirm which category applies to their operations before estimating the cost of the proposed framework.
Why NPCI Chose to Delay the Rollout
The postponement follows concerns about the timing and operational complexity of introducing MDR during the festive season.
Merchants and payment companies had sought additional time to prepare for the changes. Reports before the announcement highlighted questions about category-wise rates, the treatment of different transactions and the readiness of payment systems.
Introducing a new fee structure requires more than communicating a percentage. Banks and payment service providers must correctly identify eligible transactions, calculate charges, reconcile settlements and ensure that exemptions are applied consistently.
Merchants may also need to review payment acceptance arrangements and understand how the fee affects their margins. Larger businesses with high transaction volumes may need to update accounting systems and reporting procedures.
The festive season creates an additional challenge because businesses often process more payments during a concentrated period. Delaying the rollout gives participants more time to make these adjustments outside the immediate lead-up to Diwali.
However, NPCI has not announced that the fee will be abandoned or that the proposed rates will be changed. The new implementation date remains pending.
What the Delay Means for Merchants
For merchants, the postponement provides additional time before the proposed processing cost begins to apply to eligible transactions.
The financial impact will vary according to the value and composition of a business’s UPI receipts. A retailer that mainly receives payments below ₹2,000 may see little or no direct impact from the standard MDR. A business receiving a larger proportion of eligible high-value payments may face a more noticeable cost.
Consider a merchant receiving ₹10 lakh in eligible transactions during a period. If all those payments were subject to the standard 0.4% rate, the gross MDR would amount to ₹4,000 before considering the transaction cap, exemptions, special rates and any applicable tax treatment.
This is an illustrative calculation rather than a forecast of what a typical merchant will pay. The actual cost depends on the number and value of covered transactions and the merchant’s eligibility under the framework.
Businesses can use the additional time to examine their transaction mix, review payment-provider communications and prepare their accounting systems. They should also confirm that customer-facing payment processes comply with the rule that MDR is not to be separately passed on to customers.
For small merchants, the exemption remains particularly relevant. Qualifying businesses should verify that their accounts and QR payment arrangements are classified correctly rather than assuming that all merchants will be charged.
How the Decision Could Affect PhonePe, Google Pay and Other Payment Providers
India’s UPI ecosystem includes banks, payment applications, technology providers and merchant-acquiring services. The MDR framework is designed to distribute fees among eligible participants in this ecosystem rather than directing the money to the government.
Payment service providers and application operators may receive a share of the fee under the applicable arrangements. This could create a revenue stream linked to eligible merchant payments, although the financial benefit will depend on transaction volumes, fee allocation and the costs of operating the service.
PhonePe and Google Pay are major participants in India’s UPI market. Banks and other payment firms also play important roles in processing transactions, maintaining accounts and supporting merchant acceptance.
The postponement gives these participants additional time to implement the required systems and communicate the changes to merchants. However, it also delays the start of any revenue associated with the proposed MDR.
The longer-term implications will depend on how the fee structure is implemented, how many transactions qualify and how costs are distributed across payment ecosystem participants.
The change does not, by itself, establish that payment applications will become more profitable or that consumers will alter their preferred payment methods. Those outcomes will depend on how the framework works in practice.
Will Customers Have to Pay More for UPI?
Under the announced framework, MDR is a merchant-side charge, and banks have been advised to ensure that merchants do not pass it on separately to customers.
Consumers should therefore not interpret the proposed fee as a new charge automatically added to every UPI payment above ₹2,000.
Person-to-person transfers remain free, and merchant transactions up to ₹2,000 remain outside the standard MDR. Qualifying small merchants are also exempt.
The distinction between a merchant fee and a consumer charge is central to the policy. MDR is intended to support the payment ecosystem, while the framework seeks to preserve free access for ordinary users and protected merchant categories.
Nevertheless, any new operating cost can influence how businesses manage their margins. The official framework does not permit merchants to separately pass the MDR on to customers, but the broader commercial effects will depend on implementation and merchant behaviour.
Consumers should check payment confirmations and merchant communications rather than assume that a new fee applies simply because a transaction exceeds ₹2,000.
What Happens Next?
NPCI has said the revised implementation date will be announced separately. Until that announcement, October 15 should no longer be treated as the start date for the proposed MDR.
The period after Diwali will be important for determining when the framework becomes operational and whether any further clarification is issued on merchant categories, exemptions or implementation requirements.
Banks and payment providers will need to communicate the final timeline to merchants. Businesses should also review official notices to ensure that their systems apply the correct rate and do not impose charges on exempt transactions.
For the wider digital payment ecosystem, the central question is how the proposed MDR will support payment infrastructure while preserving the accessibility and convenience that have contributed to UPI’s adoption.
The Bigger Picture
The postponement highlights the challenge of introducing a new payment fee in an ecosystem that has operated for years with zero MDR on most UPI transactions. While the proposed framework aims to support the costs of maintaining and expanding payment infrastructure, it also requires merchants and service providers to adapt to new rules.
The delay offers temporary relief from the original October 15 deadline, particularly for businesses preparing for the festive shopping period. It does not remove the proposed fee or establish a permanent exemption for transactions that fall within the framework.
For payment companies, MDR could provide a new source of revenue from eligible merchant transactions. For merchants, the effect will depend on transaction size, monthly receipts, exemptions and the mix of products or services sold. For consumers, ordinary person-to-person transfers and qualifying low-value merchant payments are expected to remain free.
The outcome will depend on the final implementation timeline, how consistently the rules are applied and whether the framework achieves its goal of supporting payment infrastructure without undermining the ease of using digital payments.
Looking Ahead
The next key development will be NPCI’s announcement of the revised start date for the 0.4% MDR framework. Merchants, banks and payment providers will be watching for confirmation of implementation arrangements, category-wise charges and operational guidance. Until then, the proposed October 15 start date remains deferred, and businesses should rely on official NPCI communications for the next steps.
The longer-term impact will become clearer once the fee is implemented and actual merchant costs and payment-sector revenues can be assessed. The central issue is whether the framework can support the UPI ecosystem’s operating requirements while preserving free person-to-person transfers, low-value merchant payments and the exemptions designed for small businesses. For now, the Diwali postponement provides additional preparation time, but the proposed MDR framework remains in place for future implementation.
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