Shops and businesses accepting UPI payments have received some breathing space ahead of the Diwali shopping rush. The National Payments Corporation of India (NPCI) has postponed the introduction of merchant discount rate (MDR) charges on select UPI transactions, originally scheduled for October 15.
The decision, taken by the UPI and Services Steering Committee on October 13, means the proposed charges will come into effect only after Diwali. NPCI will announce the revised implementation date separately.
The move comes as retailers prepare for increased festive spending, with UPI remaining a preferred payment option for millions of customers.
Under the framework announced in September, certain UPI payments made to merchants will attract an MDR of 0.4%.
Key provisions include:
Transactions above ₹2,000: Eligible merchant payments will attract a 0.4% MDR.
Maximum charge: MDR will be capped at ₹300 for transactions of ₹75,000 and above.
Who pays: The merchant pays the fee to the payment processing ecosystem.
Who receives it: The amount is shared among participating banks, payment service providers and payment apps.
For example, a qualifying merchant transaction of ₹5,000 would attract an MDR of ₹20, while a ₹10,000 payment would incur ₹40.
MDR is a processing fee, not a government tax.
The new framework does not introduce charges on every UPI payment. Several categories will continue to enjoy exemptions.
Person-to-person transfers: Sending money to friends or family will remain free, regardless of the amount.
Small merchant payments: Transactions of up to ₹2,000 will not attract MDR.
Eligible small businesses: Merchants receiving up to ₹1 lakh monthly through UPI QR codes under the applicable small-merchant framework will remain exempt.
Customer payments: Merchants cannot separately pass on MDR to consumers as an additional UPI charge.
According to the government, nearly 96% of merchant UPI transactions will remain unaffected.
India's UPI network has expanded rapidly under the zero-MDR system, making digital payments accessible to businesses of all sizes.
However, rising transaction volumes have increased the financial burden on banks and payment service providers responsible for maintaining payment infrastructure.
The proposed MDR framework seeks to provide revenue for the payment ecosystem while protecting smaller transactions and businesses.
In August, the government clarified that changes to the Payment and Settlement Systems Act, 2007, were intended to enable limited merchant charges without affecting ordinary UPI users.
The deferment does not mean the proposed MDR framework has been withdrawn. NPCI is expected to announce a fresh implementation date after Diwali.
For customers, routine UPI payments should remain largely unchanged. For businesses handling higher-value transactions, however, the new framework could increase payment acceptance costs.
The immediate relief is particularly relevant for retailers expecting higher transaction volumes during the festive season.
