NPCI Defers UPI Merchant Discount Rate Until After Diwali

The National Payments Corporation of India has deferred the introduction of a Merchant Discount Rate on selected person-to-merchant UPI transactions until after Diwali. The UPI and Services Steering Committee took the decision on 13 October, citing the festive season. A new implementation date will be announced separately.

The framework, first outlined on 15 September, had been scheduled to take effect on 15 October. It would have applied a 0.4 per cent MDR, capped at ₹300, to eligible bank-account-funded merchant payments above ₹2,000. Certain categories such as railways, telecom, insurance and fuel were to attract a flat ₹5 charge above the threshold. Person-to-person transfers, transactions of ₹2,000 or less, and qualifying small merchants remain free. Merchants are not permitted to pass the fee to customers.

Diwali falls on 8 November this year. The postponement therefore covers the peak shopping period when digital payments typically rise. Industry groups including the All India Mobile Retailers Association had sought a delay, a higher exemption threshold for small merchants, and relief for merchant-to-merchant flows. A petition challenging the MDR is also before the Supreme Court; the next hearing is listed for 2 November.

NPCI has said the revenue from MDR would support merchant expansion, payment infrastructure and fraud prevention. Banks and payment companies that expected the income stream from mid-October will now wait until the post-Diwali date. Officials have indicated that the rate structure itself is unchanged; only the start date has moved.

Roughly 4 per cent of merchant transactions are expected to fall under the charge once it begins, while more than 95 per cent of person-to-merchant volume stays outside it. The government has previously stated that the large majority of UPI payments will continue without fees. The deferral gives payment-service providers and merchants additional weeks to adjust systems and communications before the levy applies.

The decision avoids imposing a new cost on merchants during the busiest retail weeks of the year. It also leaves the underlying policy question—how to fund the UPI ecosystem while preserving zero-cost transactions for consumers and small merchants—unresolved until after the festival. The exact post-Diwali date, the final list of exempted categories, and the outcome of the court hearing will determine when and in what form the charge actually appears in transaction flows.

For consumers the immediate effect is none: UPI remains free at the point of payment. For larger merchants the temporary relief is real but time-limited. NPCI’s statement emphasises that the committee acted with the festive calendar in mind and that a separate notification will fix the new start date.