NPCI Defers 0.4 Percent MDR on High-Value UPI Merchant Payments Until After Diwali

The National Payments Corporation of India has deferred the introduction of a merchant discount rate on select high-value UPI transactions until after Diwali. The UPI and Services Steering Committee made the decision on 13 October 2026, citing the festive season. The charge had been scheduled to take effect on 15 October.

Under the framework announced in September, a 0.4 percent MDR would apply to person-to-merchant UPI payments above Rs 2,000. Certain categories, including railways, telecom, insurance, fuel, and agricultural inputs, would instead face a flat fee of Rs 5 per transaction. Person-to-person transfers and the large majority of low-value merchant payments remain free. Small merchants with limited monthly volume are also exempt.

NPCI stated that the postponement keeps the festive period free of the new charge. Diwali falls on 8 November 2026. The corporation will announce a fresh implementation date after the festival. Industry groups had opposed the original timeline. A legal challenge is also pending; the Supreme Court has sought responses from NPCI, the Reserve Bank of India, and the central government, with the next hearing set for 2 November.

UPI processes the bulk of India's digital retail payments. Officials have said roughly 96 percent of merchant transactions will remain outside the new MDR framework even after it begins. The 4 percent of higher-value payments that would attract the fee represent a smaller share of total volume but a larger share of value. Merchants in thin-margin sectors had argued that any charge would be passed on to consumers or absorbed at a cost to small retailers.

The deferral gives payment service providers and merchants additional weeks to adjust systems and contracts. Banks and fintech firms that earn interchange on UPI have long sought some form of MDR to cover costs. The government has previously resisted charges on the most widely used payment method. The post-Diwali timing places the start of the fee after the peak shopping period.

Nithin Kamath of Zerodha and the All India Mobile Retailers Association were among those who publicly criticised the September announcement. The legal petition questions both the process and the economic impact. NPCI has not released the full list of merchant categories that will face the 0.4 percent rate or the precise exemptions that will apply once the deferred date arrives.

For consumers, person-to-person UPI and most everyday merchant payments stay free. The change, when implemented, will affect only larger ticket merchant transactions. Retailers will need to decide whether to absorb the MDR or add it to the bill. The exact operational rules will be clearer once NPCI issues the post-Diwali notification.