Key Points
- NPCI postpones UPI MDR implementation originally set for 15 October to post-Diwali
- MDR of 0.4 per cent would apply to UPI transactions exceeding ₹2,000
- Supreme Court directs NPCI and RBI to file affidavits by late October
The National Payments Corporation of India (NPCI) has postponed the implementation of merchant discount rate (MDR) charges on UPI transactions, originally scheduled for 15 October, to a date immediately after Diwali, following pressure from trader bodies and intervention from the Prime Minister’s Office.
MDR is a fee that merchants pay to banks and payment service providers when they accept digital payments. The charge, set at 0.4 per cent, would have applied to UPI transactions exceeding ₹2,000 at medium and large merchant establishments. Transactions related to capital markets and those in strategic sectors would have faced different rates.
The decision to delay marks a significant pause in efforts to introduce a sustainable revenue model for UPI, which has operated without merchant fees since 2020 when the government removed MDR to accelerate digital payment adoption.
Festive season concerns
NPCI confirmed the postponement in a statement on Tuesday (13 October).
“The UPI and Services Steering Committee today decided that, keeping in mind the festive season, Merchant Discount Rate on select Person-to-Merchant UPI transactions shall be implemented immediately post Diwali at a date to be notified separately,” the NPCI statement said.
By the numbers
Key figures from this story- 0.4%
- MDR rate on UPI transactions above ₹2,000
- ₹2,000
- Transaction threshold for MDR applicability
- 15 October
- Original MDR implementation date now postponed
Government sources told TechObserver.in that the decision was made in the Prime Minister’s Office following appeals from traders who argued the charges would burden small businesses during the peak festive and wedding season.
Praveen Khandelwal, secretary-general of the Confederation of All India Traders (CAIT) and a BJP Lok Sabha member, welcomed the postponement.
“We sincerely thank Prime Minister Narendra Modi Ji and Finance Minister Nirmala Sitharaman Ji for understanding the concerns of traders and taking a positive decision,” Khandelwal said on Tuesday.
CAIT said the decision followed a meeting on 30 September when a delegation of approximately 20 trade leaders met Finance Minister Nirmala Sitharaman and raised concerns about the implications of the proposed 0.4 per cent MDR on transactions exceeding ₹2,000.
“CAIT supports digital payments, but the system must remain affordable and sustainable for merchants, especially small businesses,” Khandelwal added.
Legal scrutiny
The postponement comes as the matter faces judicial review. The Supreme Court has directed NPCI, the Centre and the Reserve Bank of India (RBI) to file affidavits by late October explaining the rationale for imposing MDR on specified UPI transactions.
The court’s involvement adds a layer of regulatory uncertainty to the timeline for any eventual implementation, even after Diwali.
CAIT described the delay as necessary given the timing. “Additional transaction costs could have placed an avoidable burden on merchants operating on thin margins and discouraged the wider acceptance of digital payments,” the traders’ body said in its statement.
Wider industry concerns
The UPI MDR proposal has drawn objections beyond retail traders. In October, liquefied petroleum gas distributors approached the Ministry of Petroleum and Natural Gas seeking complete exemption from MDR or any payment infrastructure-related levies.
The distributors argued they have no autonomy over cylinder prices and receive fixed commissions on sales, meaning MDR levies would directly reduce their earnings. They also warned that the charges could push consumers back to cash payments or encourage staggered payments below the ₹2,000 threshold to avoid the fee, creating logistical complications.
The zero MDR policy, introduced in January 2020, was intended to accelerate India’s shift to digital payments. UPI transaction volumes have grown from 125 crore monthly transactions in January 2020 to over 1,400 crore monthly transactions in 2026, according to NPCI data. However, the policy has left banks and payment service providers without a direct revenue stream from merchant transactions, prompting the current push to reintroduce charges above a threshold.
The exact date for post-Diwali implementation remains unspecified. Diwali falls on 1 November this year.
Your Questions, Answered
What is MDR on UPI transactions?
Merchant discount rate is a fee that merchants pay to banks and payment service providers when accepting digital payments. The proposed MDR of 0.4 per cent would apply to UPI transactions exceeding ₹2,000.
When will UPI MDR charges be implemented?
NPCI has stated the charges will be implemented immediately after Diwali, though no specific date has been announced. The original implementation date was 15 October 2026.
Why was UPI MDR postponed?
The decision followed appeals from trader bodies who argued the charges would burden small businesses during the festive season. Government sources said the PMO intervened after representations from CAIT.
Which UPI transactions will attract MDR?
The 0.4 per cent MDR will apply to person-to-merchant UPI transactions exceeding ₹2,000 at medium and large merchant establishments. Capital market and strategic sector transactions face different rates.
