MDR on UPI Payments Above Rs 2000 to Take Effect After Diwali, NPCI Says

The National Payments Corporation of India has set the start date for the Merchant Discount Rate on person-to-merchant UPI payments above Rs 2,000. The charge will take effect immediately after Diwali 2026. NPCI confirmed the timing in a statement released this week.

The MDR is a fee paid by merchants for accepting digital payments. For years UPI transactions carried no such charge for most users, a policy that helped the system grow to billions of monthly transactions. The government and NPCI have discussed introducing a small fee on higher-value merchant payments to support the cost of the infrastructure. The decision to delay implementation until after Diwali keeps the system free during the peak festival shopping period.

Diwali falls in late October or early November depending on the lunar calendar. The post-festival start gives merchants time to adjust pricing or absorb the fee before the next major shopping cycle. NPCI has not published the exact percentage rate in the latest announcement, but earlier discussions centered on a modest charge for transactions above the Rs 2,000 threshold. Small-value payments and person-to-person transfers are expected to remain free.

UPI processed more than 10 billion transactions in several recent months. The system accounts for a dominant share of retail digital payments in India. Banks and payment apps have argued that the absence of a sustainable revenue stream for high-volume merchant payments creates long-term cost pressures. Merchants, particularly small retailers, have worried that any fee will be passed on to customers or reduce their margins.

The delayed start avoids disruption during Diwali, when transaction volumes spike. Retailers and consumers can continue using UPI without the new charge through the festival. After the holiday the fee will apply only to the subset of merchant payments that exceed Rs 2,000. Person-to-person transfers and smaller merchant payments stay outside the charge.

NPCI operates the UPI platform under the oversight of the Reserve Bank of India. The corporation has said the MDR is intended to cover operational costs rather than generate large profits. Banks that issue the underlying accounts will receive a share of the fee. The precise allocation among banks, payment service providers, and NPCI has not been detailed in the latest public statement.

For consumers the immediate effect after Diwali will be limited to higher-value purchases at merchants that choose to pass on the cost. Many large retailers may absorb the fee to keep checkout simple. Small merchants will decide case by case. The policy change ends the period in which essentially all UPI merchant payments carried zero cost to the merchant. That period lasted long enough for the system to become the default payment method for a large share of the Indian economy.