The National Payments Corporation of India (NPCI) has postponed the implementation of new Merchant Discount Rate (MDR) charges for UPI transactions exceeding ₹2,000. Originally slated for October 15, 2026, the UPI and Services Steering Committee deferred the framework on October 13, citing the ongoing festive season. While ordinary consumers will continue to make UPI payments free of direct charges, specific merchant categories will now face fees.
When Will UPI MDR Charges Begin?
NPCI indicated that the revised framework would take effect immediately after Diwali, with the exact date to be notified separately. This has led to speculation regarding whether charges could commence from November 9 or be further postponed until January 1, 2027. As of now, NPCI has not officially confirmed an exact start date, leaving merchants to await formal notification.
How Much Will Merchants Pay?
Under the proposed framework, eligible person-to-merchant (P2M) UPI transactions exceeding ₹2,000 will attract an MDR of 0.4%. This charge is capped at ₹300 for payments of ₹75,000 and above. For example, a retailer receiving ₹5,000 via UPI would pay ₹20, while a ₹10,000 transaction would incur a ₹40 fee. A ₹50,000 payment would cost the merchant ₹200. It's crucial to note that this charge applies only to specified merchant categories, not every UPI transaction over ₹2,000.
Who Will Remain Exempt from UPI MDR Charges?
According to the Finance Ministry, approximately 96% of UPI merchant transactions will remain unaffected by the proposed charges. Several categories and transaction types are exempt:
- Person-to-Person (P2P) Transfers: These will continue to be free, regardless of the amount.
- Small Merchant Payments: Merchant payments up to ₹2,000 will remain exempt.
- Eligible Small Merchants (P2PM): Merchants classified under the Person-to-Person-Merchant category, receiving up to ₹1 lakh monthly through UPI QR payments, will retain zero-MDR benefits.
- Essential Services: Certain essential services, including specified railway, fuel, insurance, telecommunications, and agricultural transactions, will attract a concessional flat charge of ₹5 on payments exceeding ₹2,000.
- Capital Market Transactions: Mutual funds, securities, and stockbroker transactions will attract a lower MDR of 0.02%, capped at ₹300.
- Recurring Payments: Eligible recurring payments through UPI AutoPay, such as SIPs and subscriptions, will also remain exempt.
Will Customers Pay Extra?
The government has explicitly clarified that MDR is payable by merchants, not customers. Banks have been advised to prevent merchants from directly passing on these charges, and UPI applications are prohibited from imposing additional platform fees. However, retailers could potentially adjust product prices or discounts to absorb their higher payment-processing expenses.
Why Is MDR Being Introduced?
UPI has operated under a zero-MDR regime since January 2020. However, maintaining the vast digital payment infrastructure involves substantial expenditure on technology, cybersecurity, and fraud prevention. Industry estimates cited by the Finance Ministry suggest annual UPI infrastructure costs of approximately ₹20,000 crore. The proposed framework aims to generate revenue for banks and payment providers, ensuring the sustainability and continued growth of the UPI ecosystem, while protecting smaller transactions from charges.
Concerns Raised by the New Framework
An Indian School of Business survey of 722 street vendors found that 53% of respondents in Tier 1 cities and 45% each in Tier 2 and Tier 3 cities could reduce UPI acceptance if charges were introduced.
Despite the benefits for infrastructure, concerns remain regarding the potential impact on merchant adoption, particularly among smaller businesses. For now, merchants must await NPCI's formal implementation notification, while consumers can continue making UPI payments without direct MDR charges.