NPCI Defers 0.4% UPI MDR on Merchant Transactions Above Rs 2,000 Until After Diwali

In an official release issued from Mumbai on October 13, 2026, the National Payments Corporation of India (NPCI) announced that the implementation of the Merchant Discount Rate (MDR) on select Person-to-Merchant (P2M) Unified Payments Interface (UPI) transactions has been deferred until after the festive season.

The decision was formalized by the UPI and Services Steering Committee, which opted to push back the levy to avoid disruptions during the heavy festive shopping cycle. A revised implementation date is set to be notified separately. The charges were originally slated to take effect from October 15, 2026.

Details of the MDR Structure

The upcoming fee framework follows statutory amendments under the Taxation and Other Laws (Amendment) Bill, 2026, amending Section 10A of the Payment and Settlement Systems Act, 2007, which empowered authorities to permit fee structures on digital payment platforms:

• General Merchant Transactions: An MDR of 0.4% will be levied on eligible P2M transactions exceeding ₹2,000. The total fee is capped at ₹300 for transaction amounts of ₹75,000 and above.
• Essential and Utility Categories: Payments over ₹2,000 for railways, telecommunications, insurance, and fuel will attract a flat rate of ₹5 per transaction rather than an ad-valorem fee.
• Capital Market Transactions: Transactions in the capital market segment will attract a fee of 0.02%, capped at ₹300 per payment.
• Exemptions: Person-to-person (P2P) transfers, small merchant transactions categorized under the P2PM tier, and all P2M payments of ₹2,000 or below will remain free of MDR.

According to industry estimates and government projections, approximately 96% of all merchant transactions will remain completely unaffected by the charge due to the ₹2,000 floor and small-merchant exemptions. Merchants are also explicitly barred from passing the MDR cost onto consumers.

Impact on Retailers and the Fintech Ecosystem

The deferral provides breathing room to high-ticket retailers, consumer electronics chains, apparel brands, and e-commerce platforms that rely heavily on UPI for festival sales. A merchant accepting a ₹5,000 payment would otherwise incur an MDR charge of ₹20 under the 0.4% framework.

Conversely, the move temporarily pauses the timeline for monetization across India's digital payment ecosystem. Since the abolition of zero-MDR regulations on UPI, fintech firms and acquirer banks have absorbed processing, server, and fraud-mitigation infrastructure expenses. The post-Diwali implementation will distribute collected fees across participating banks, system payment providers, and payment apps, providing recurring revenue to support infrastructure modernization and cybersecurity. Following the postponement notice, shares of major listed digital payment and financial service firms rebounded from intra-day lows.

Tags: National Payments Corporation of India Reserve Bank of India One97 Communications Fintech Sector Unified Payments Interface