Get ready, merchant fees on UPI payments to start after Diwali
This system was initially set to begin on October 15.
Merchant Discount Rate or MDR on select payments made to merchants through UPI will now be implemented after Diwali. The National Payments Corporation of India (NPCI) announced this on Tuesday, October 13. The UPI and Services Steering Committee has decided to postpone the implementation of the fee considering the festive season. Earlier, this arrangement was set to come into effect from October 15. The new date will be announced separately.
NPCI stated in a release on social media platform X that the MDR will be applicable on select person-to-merchant UPI transactions immediately after Diwali.
However, the statement on Tuesday did not provide a detailed mention of all categories that will incur the fee. The previously announced fee structure and related guidelines will be the basis for this. Currently, merchants have received temporary relief from this additional payment cost during the festive shopping.
MDR is the fee charged to the merchant for processing digital payments. Under the announced arrangement, a fee of 0.4 percent will be applicable on select UPI merchant payments exceeding ₹2,000. This is also referred to as 40 basis points. This fee will be borne by the merchant accepting the payment, rather than the customer. Person-to-person transactions, where one individual sends money to another, will be exempt from this fee.
The new framework sets a maximum limit of ₹300 per transaction for MDR on general merchant payments.
For example, if a merchant accepts a UPI payment of ₹10,000, they will have to pay a fee of ₹40.
Similarly, for a payment of ₹5,000, the fee will be ₹20.
For a transaction of ₹75,000, this amount will reach ₹300. For payments exceeding this amount, the fee will not exceed ₹300 due to the set limit.
It is important to understand the ₹2,000 limit. The announced rules will apply to relevant merchant payments exceeding ₹2,000. Therefore, there will be no MDR on a payment of exactly ₹2,000. An example of ₹8 fee on ₹2,000 payment is provided to explain the calculation of 0.4 percent, but the limit for fee applicability is different. Additionally, the percentage-based fee will be calculated on the entire amount of eligible transactions, not just on the portion above ₹2,000.
For some essential services, a fixed MDR of ₹5 per transaction will be applied instead of a percentage-based fee. These include railways, telecommunications services, insurance, and fuel. Previously released information from the Finance Ministry included agricultural inputs in this list. The fee will also apply to relevant UPI payments exceeding ₹2,000 in these categories. The fixed fee will not increase with the amount of payment.
According to the Finance Ministry, it is not permitted to collect MDR from customers. The legal background for this fee structure is linked to the Taxation and Other Laws (Amendment) Bill, 2026, which was passed by Parliament. This bill was passed on August 11, granting the government the authority to impose fees on specified digital payment methods by amending Section 10A of the Payment and Settlement Systems Act, 2007. Following this, the UPI Steering Committee set the MDR rates for relevant merchant transactions last month.
The timing of the fee implementation is particularly significant for merchants. Shopping increases during Diwali at stores and online businesses. According to a report by Moneycontrol, the government was concerned that the implementation of MDR amid rising inflation could increase the cost of business during the festive sales. There were also fears that some merchants might try to pass on this additional cost to customers in some form.
Merchant organizations, fintech companies, and payment service companies had also requested more time for the implementation of the arrangement. Their concerns included varying fee rates across different categories, compliance with regulations, and the applicability of these to various UPI payments. The new arrangement will need to identify which payments will fall under the general percentage-based fee and which will incur a fixed fee. The extension of the date will provide the concerned parties with additional time to prepare.
Finance Minister Nirmala Sitharaman stated on October 8 that the matter of MDR on UPI will be handled by the relevant merchants. She had left the decision on the timing of the fee implementation to the parties involved in the payment system. Now, following NPCI's decision, the new date will be awaited. The key point for the general public is that there will be no fee for sending personal money, and the responsibility for the announced MDR will lie with the respective merchant.