The National Payments Corporation of India (NPCI) on 13 October 2026 announced that the implementation of Merchant Discount Rate (MDR) charges on select person-to-merchant (P2M) UPI transactions will take place immediately after Diwali. The exact date will be notified separately. The decision comes from the UPI and Services Steering Committee, which chose to defer the earlier planned rollout keeping the festive season in mind.
Background of the Planned Rollout
The revised MDR framework for certain UPI merchant transactions was originally scheduled to come into effect from 15 October 2026. NPCI had earlier released detailed frequently asked questions explaining the structure. Under that framework, a 0.4 per cent MDR was to apply to specified P2M transactions above Rs 2,000, subject to a maximum cap of Rs 300 for high-value payments. Certain essential sectors were to attract a flat fee of Rs 5 on qualifying transactions.
The deferment gives merchants, payment service providers, banks and fintech platforms additional time to complete operational preparations while avoiding any disruption during the peak festive shopping period.
Which Transactions Will Attract the Charge
The MDR applies only to select person-to-merchant UPI payments. Person-to-person (P2P) transfers, including transfers between family members, friends or self-transfers across linked accounts, will continue to remain free of any charge regardless of the amount.
For ordinary merchant transactions above Rs 2,000, the standard MDR is set at 0.4 per cent. For example, a payment of Rs 3,000 would attract an MDR of Rs 12, while a Rs 50,000 payment would attract Rs 200. Once the transaction value reaches Rs 75,000 or higher, the charge is capped at Rs 300. This means a payment of Rs 1 lakh would still attract only Rs 300 rather than the Rs 400 that a straight 0.4 per cent calculation would produce.
Specific categories such as railways, telecom services, insurance and fuel will attract a flat MDR of Rs 5 on transactions above Rs 2,000 instead of the percentage-based rate. Capital market related payments, including those to mutual funds and securities dealers, will carry a much lower rate of 0.02 per cent, also capped at Rs 300.
Impact on Consumers and Merchants
An important clarification is that the MDR is a charge borne by the merchant side of the transaction. Consumers making UPI payments will not be required to pay any additional fee. Official communications have also stated that merchants are not permitted to pass the MDR on to customers. Shoppers will continue to pay only the posted price of goods or services.
Transactions up to Rs 2,000, which constitute the overwhelming majority of UPI merchant payments (more than 95 per cent according to NPCI), will remain completely free of MDR. Small merchants covered under existing zero-MDR provisions will also continue to enjoy exemption. As a result, only a small fraction of overall UPI merchant volume is expected to fall under the new framework.
Why the Framework Was Introduced
UPI has grown into one of the world’s largest real-time payment systems, handling billions of transactions every month. Until now, the system has operated largely without merchant charges on most payments, supported by a combination of government policy and ecosystem subsidies. The introduction of a limited MDR on higher-value merchant transactions is intended to create a more sustainable revenue model for banks, payment aggregators and other participants who invest in the infrastructure, technology and customer service that keep the network running.
Even after the MDR is applied, the cost to merchants remains significantly lower than typical debit card or credit card charges. Debit card MDR can go up to around 0.9 per cent, while credit card rates are often in the range of 1.5 to 2.5 per cent. The capped UPI structure is designed to keep digital payments competitive while generating modest revenue for the ecosystem.
Timing and Next Steps
By shifting the start date to immediately after Diwali, NPCI has responded to feedback from merchants and payment companies who had raised concerns about operational readiness and consumer sentiment during the festival sales period. The festive season sees a sharp rise in high-value purchases of jewellery, electronics, appliances and other goods, many of which are settled through UPI.
NPCI has stated that the revised implementation date will be announced separately. Once notified, banks, payment aggregators and merchant platforms will need to ensure their systems correctly identify eligible transactions, apply the appropriate rate or flat fee, and handle the settlement of the MDR among the participating entities.
Looking Ahead
The deferment provides breathing space but does not alter the underlying policy direction. Once the new date is fixed, the limited MDR on select higher-value merchant transactions will form part of the UPI landscape. For the vast majority of everyday users and small-value payments, the experience of free, instant transfers is expected to remain unchanged.
Merchants, especially those handling frequent transactions above Rs 2,000, will need to factor the MDR into their cost structures while continuing to offer customers the convenience of UPI. The success of the framework will depend on smooth operational execution and continued growth in digital payment volumes.
NPCI’s decision to wait until after the festive season reflects a pragmatic approach that balances the need for a sustainable payments ecosystem with the practical realities of India’s busiest retail period. The exact start date will be the next key announcement to watch.
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