NPCI Defers Merchant Discount Rate on Select UPI Transactions Until After Diwali

The National Payments Corporation of India said on 13 October that the Merchant Discount Rate on select person-to-merchant UPI transactions will be implemented immediately after Diwali rather than on the previously announced date of 15 October. The UPI and Services Steering Committee cited the festive season in its decision. Diwali falls on 8 November this year. An exact start date will be notified separately.

Under the framework released in September, a 0.4 percent MDR applies to standard merchant payments above ₹2,000, capped at ₹300 for transactions of ₹75,000 and above. Certain essential categories, including railways, telecom, insurance, fuel and agricultural inputs, face a flat ₹5 charge instead. Person-to-person transfers, all payments of ₹2,000 or less, and small merchants under the P2PM framework who receive up to ₹1 lakh a month through UPI QR codes remain exempt. NPCI has stated that roughly 95 percent of person-to-merchant volume will stay free of the new charge.

Consumers will not pay the MDR. The cost falls on merchants and is then shared among acquiring banks, issuing banks, payment service providers and app providers according to a published interchange schedule. Banks and aggregators have been instructed not to pass the levy on to customers. The Centre has said it will monitor implementation daily once the charges begin.

The deferral gives merchants and payment companies additional weeks to adjust systems and pricing before the peak shopping period. Digital payments typically rise sharply in the weeks surrounding Diwali as households buy clothing, jewellery, appliances and vehicles. Industry groups had asked for more time after the original 15 October target was set.

UPI has operated without merchant fees for most of its existence. The reintroduction of a limited MDR meets a long-standing request from banks and fintech firms that the zero-fee model had become unsustainable at current volumes. At the same time the exemptions preserve the free experience for the large majority of everyday transactions that made UPI dominant.

The precise post-Diwali date has not been published. Until that notice appears, the existing zero-MDR regime continues for all UPI payments. Merchants who accept high-value transactions will need to decide whether to absorb the eventual 0.4 percent cost, adjust prices, or encourage alternative payment methods. For the moment the only confirmed change is the calendar: the new charges will not arrive before the festival ends.