Small businesses and consumers in India have received a temporary reprieve regarding the introduction of new transaction fees. The National Payments Corporation of India (NPCI) has officially deferred the implementation of a 0.4% Merchant Discount Rate (MDR) on select high-value Unified Payments Interface (UPI) transactions until after the Diwali festive season 14.
Originally scheduled to begin on October 15, 2026, the rollout was postponed following pushback from merchant associations and trade bodies 14. While the NPCI has not yet specified a new start date, the delay ensures that the peak shopping period—where consumers traditionally splurge on items like clothes, appliances, and vehicles—will remain unaffected by the new cost structure 16.
Understanding the UPI MDR charges and exemptions
The proposed fee structure is designed to apply only to specific types of transactions, leaving the majority of everyday UPI usage free of cost. According to the Press Information Bureau, approximately 96% of all Person-to-Merchant (P2M) transactions will remain unaffected by this change 3.
The 0.4% MDR will apply only to eligible merchant transactions that exceed ₹2,000 14. For very high-value transactions, the fee is capped at ₹300 for amounts over ₹75,000 5. It is important to note that this is not a tax or a government charge; rather, it is a fee distributed among banks and payment application providers to support the operation and expansion of the UPI ecosystem 3.
Several categories remain completely exempt from any charges:
- Person-to-Person (P2P) Transfers: All transfers between individuals remain free, regardless of the amount 3.
- Small Merchant Transactions: Merchants who receive up to ₹1 lakh per month via UPI QR codes (classified under the P2PM category) will continue to enjoy zero MDR 3.
- Low-Value Merchant Payments: Any payment to a merchant that is ₹2,000 or less remains free for both the customer and the merchant 3.
Impact on merchants and shoppers
The introduction of the 0.4% fee is a merchant-side cost. Official guidelines state that merchants are not permitted to pass this charge on to customers 5. This means consumers should continue to pay the listed price for goods and services without any additional UPI-related markups 5.
For retailers, the fee represents a shift in India’s long-standing policy of keeping UPI payments free for merchants, a rule that has been in place since January 2020 to encourage digital adoption 1. Some retailers and petrol pump operators expressed concern that the new fee could compress retail margins, with some even warning they might stop accepting UPI if the charges became too burdensome 14.
The NPCI maintains that these charges are necessary to make the digital payments business more lucrative and sustainable for the companies facilitating the services 1. Currently, the annual cost of operating UPI—including server bandwidth, fraud prevention, and technical support—is estimated at approximately ₹20,000 crore 5.
Why the delay was granted
The decision to postpone the rollout until after Diwali was described as “timely and pragmatic” by the Confederation of All India Traders (CAIT) 6. Diwali, which falls on November 8 in 2026, is a critical period for the Indian economy 6.
Trade representatives met with the finance minister on September 30 to discuss concerns regarding the timing of the fee 6. By deferring the rollout, the government and NPCI aim to avoid any disruption to festive shopping and allow payment firms more time to upgrade their systems without passing immediate costs to retailers during the high-volume season 46.
The future of the UPI ecosystem
While the delay provided a boost to the share prices of major fintech entities like Paytm, Pine Labs, and MobiKwik, the NPCI has clarified that the MDR is simply delayed, not cancelled 46. The transition to a commercial, threshold-based model is intended to provide more reliable funding for the network than relying solely on government budget allocations 5.
UPI has become the backbone of India’s digital economy, processing 24.07 billion transactions worth ₹29.37 trillion in September 2026 alone 1. As the system continues to grow and expand internationally to countries like Singapore and the UAE, the debate over its long-term financial sustainability remains a central focus for regulators and the private sector 12.
Frequently asked questions
Will I be charged for sending money to my friends or family?
No. All person-to-person (P2P) transactions remain completely free, regardless of the amount being sent 3.
Do I have to pay extra when shopping at a large retail store?
No. The MDR is a fee paid by the merchant to the banks and payment providers. Merchants are not permitted to pass this cost on to the consumer 5.
What happens to payments below ₹2,000?
All merchant transactions of ₹2,000 or less remain free of MDR 34.
When will the new charges actually start?
The NPCI has stated the charges will be implemented after Diwali, but a specific date has not yet been notified 16.
This article is for general informational purposes only and does not constitute financial or investment advice.
This article is for general information only and is not financial advice. Consider speaking to a licensed adviser before making financial decisions.
Sources
- India delays digital payments fee rollout amid retailer pushback – Jingletree (jingletree.com)
- Why the UPI MDR debate is about more than finding an acceptable transaction fee | Mint (livemint.com)
- Press Release: Press Information Bureau (pib.gov.in)
- India Business Journal – MDR on UPI payments put off until post-Diwali to avoid festive shopping disruption (indiabusinessjournal.com)
- NPCI Defers 0.4% UPI Merchant Charge Until After Diwali | The Indian Insider (theindianinsider.com)
- India Delays UPI Fee Rollout To After Deepavali, News, Tabla (tabla.com.sg)
