The proposed Merchant Discount Rate (MDR) charges on select Unified Payments Interface (UPI) transactions have been postponed until after Diwali, offering temporary relief to traders amid the festive shopping rush. The National Payments Corporation of India (NPCI) announced the decision on Tuesday, October 13, following requests from traders to defer the implementation of the new charges.
The charges were initially scheduled to take effect on October 15, a date that fell in the middle of the festive shopping season, when businesses typically witness a surge in consumer spending and digital transactions.
In a media statement, NPCI said the UPI and Services Steering Committee had decided that MDR on select Person-to-Merchant (P2M) UPI transactions would be implemented immediately after Diwali, keeping the festive season in mind. The corporation added that the revised implementation date would be announced later.
The postponement is expected to give merchants, payment service providers and consumers additional time to prepare for the proposed changes. It also addresses concerns that introducing transaction fees during a peak shopping period could create confusion and disrupt digital payment adoption.
What are the new UPI MDR charges?
In September, the UPI Steering Committee set the MDR at 0.4% for select merchant transactions exceeding Rs 2,000. The Merchant Discount Rate is the fee charged to merchants for processing digital payments.
At the proposed rate, a transaction of Rs 2,000 would attract a fee of Rs 8, while a payment of Rs 10,000 would incur a charge of Rs 40, subject to the applicable rules and caps.
However, certain sectors will be subject to a different fee structure. Transactions exceeding Rs 2,000 in select categories, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of Rs 5.
The revised framework does not mean that all UPI payments will become chargeable. Person-to-person transfers and most everyday merchant transactions are expected to remain free. The proposed charges apply only to specified categories of merchant payments.
According to the Centre’s stated framework, the charges will be borne by merchants rather than consumers. The fee will also be capped at Rs 300 for transactions of Rs 75,000 or more.
Why is the Centre introducing MDR on UPI?
The proposed charges come amid growing debate over how India’s rapidly expanding digital payments infrastructure should be funded.
UPI has become an integral part of everyday commerce, enabling instant payments across businesses ranging from large retail chains to neighbourhood grocery stores. Its widespread adoption has been supported by its ease of use and the absence of charges on most routine transactions.
However, maintaining the system involves substantial expenditure on payment infrastructure, cybersecurity, fraud prevention, system resilience and customer support.
According to the Finance Ministry’s September FAQs, industry estimates put the annual cost of operating UPI at approximately Rs 20,000 crore. The Centre has argued that relying exclusively on government incentives to finance these operations may not be sustainable over the long term.
The proposed MDR is intended to help recover some of these costs and provide a funding mechanism for the payment ecosystem. However, the move also raises questions about how the financial burden will be distributed among payment companies, merchants and the wider economy.
Will the new charges affect small businesses?
While the government has maintained that the proposed charges will not be directly imposed on consumers, their potential impact on merchants remains a concern.
Small businesses, in particular, often operate on thin profit margins and increasingly depend on UPI for everyday transactions. Even a relatively small processing fee could add to their operating expenses if a significant proportion of their sales falls within the categories attracting MDR.
Mukesh Pandey, Founder and Managing Director of Rupyaapaisa.com, told NDTV that introducing merchant fees on UPI transactions exceeding Rs 2,000 could increase costs for businesses, particularly small shops and service providers that rely heavily on digital payments.
He noted that although the charges could help payment companies cover the costs of operating the system, excessively high fees could discourage merchants from accepting UPI or lead some businesses to pass on the additional expense to customers through higher prices.
Pandey also emphasised that UPI’s success has been built on its simplicity, accessibility and affordability.
Atish Shelar, Group CEO of MOS Utility Limited, similarly highlighted the importance of avoiding confusion as UPI becomes an increasingly routine part of everyday commerce, especially for small businesses.
He said the additional time should be used to prepare merchants and payment service providers for the change without disrupting the adoption of digital payments.
The NPCI is expected to announce the revised implementation date after Diwali. Until then, merchants and payment service providers will have additional time to understand the applicable charges and make the necessary preparations.
