The National Payments Corporation of India (NPCI) has postponed the implementation of Merchant Discount Rate (MDR) charges on select Unified Payments Interface (UPI) transactions until after Diwali, with the revised date to be announced separately.
The decision was taken by the UPI and Services Steering Committee on Tuesday, October 13, in view of the festive season. The charges had initially been scheduled to come into effect on October 15.
The proposed framework will apply to selected person-to-merchant (P2M) transactions, with merchants paying a fee for processing eligible digital payments. The postponement does not change the proposed fee structure.
How the proposed UPI charges will work
Under the proposed framework, merchants will be charged an MDR of 0.4% on eligible P2M UPI transactions exceeding ₹2,000, subject to a maximum fee of ₹300 per transaction.
A separate flat fee of ₹5 per transaction will apply to payments above ₹2,000 in four specified categories: railways, telecom services, insurance and fuel.
Person-to-person (P2P) transfers will remain exempt from the proposed charges. The framework is intended to cover only specified merchant transactions rather than all UPI payments.
MDR is a fee paid by merchants to the banks and payment service providers that process digital transactions. The exact implementation date for the revised framework will be notified separately by NPCI.
Legislative changes paved the way for MDR
The proposed fee structure follows Parliament's passage of the Taxation and Other Laws (Amendment) Bill, 2026, on August 11. The legislation amended Section 10A of the Payment and Settlement Systems Act, 2007, giving the government the power to permit charges on specified digital payment modes.
The amendment provided the legal framework for determining whether charges could be imposed on selected electronic payment transactions. The UPI and Services Steering Committee subsequently decided on the proposed MDR structure.
UPI users and person-to-person transfers to remain exempt
The proposed MDR is intended to apply to merchants accepting eligible UPI payments, rather than directly charging customers for making payments. Person-to-person transfers are excluded from the framework.
The government had earlier clarified that consumers would not face transaction charges and that any MDR introduced would apply only to a limited set of merchant transactions above a specified threshold. Most merchant transactions were also expected to remain free of charge.
The revised implementation schedule means the proposed merchant charges will not take effect on October 15 as originally planned. NPCI is expected to announce the new date separately, after the Diwali festival.