UPI Charges on Select Merchant Payments to Begin After Diwali: NPCI

New Delhi: The National Payments Corporation of India (NPCI) has decided to introduce the Merchant Discount Rate (MDR) on select Person-to-Merchant (P2M) UPI transactions after Diwali. The exact date of implementation will be announced separately.  

In a post on X, NPCI said, “UPI and Services Steering Committee today decided that, keeping in mind the festive season, Merchant Discount Rate (MDR) on select Person-to-Merchant (P2M) UPI transactions, shall be implemented immediately post Diwali at a date to be notified separately.”

The decision comes amid reports that the proposed rollout, earlier scheduled for October 15, could be postponed to January 1. The reports emerged after the Global Trade Research Initiative (GTRI), an economic think tank, urged the government to withdraw the proposed charges and maintain free digital payments for both merchants and consumers.

What Is The Proposed UPI Charge And Who Will Pay It?

Under the new plan, a 0.4% MDR will be charged on certain UPI transactions made by merchants for amounts over Rs 2,000. The fee is for when customers pay businesses will not apply to person-to-person transfers.

MDR is a fee that businesses pay when they handle online payments.  The suggested system also includes a flat charge of Rs 5 for each transaction made to merchants in four specific groups, which are railways, telecom services, insurance, and fuel. 

For other eligible merchant transactions that are more than Rs 2,000, the MDR will be 0.4% of the transaction amount, but it cannot exceed Rs 300 per transaction.  However, the NPCI's latest announcement has not mentioned the exact date when the charges will start or given details about which types of merchants will be affected when the charges are applied.

Will Customers Have To Pay Extra For UPI Transactions?

Government officials have stated that the proposed MDR will not be passed on to consumers.  They have also turned down the Opposition's claims, including those from the Congress, that the charge is basically a tax on consumers. 

Sources say that not even one penny from the proposed MDR will be sent to the government.  The money collected will be shared with the people who used the UPI payment system. 

According to the suggested plan, 40% of the MDR will be sent to the customer's bank, 30% will go to the payment gateway, 20% will be given to the UPI app, and the remaining 10% will be sent to the bank that supports the UPI app.  The government says the charge is meant to help companies that handle digital payments, not to make more money for the government. 

Why Has The UPI MDR Rollout Been In The News?

The proposed charges are getting a lot of attention before the festive season, which is a time when digital payments usually increase because people buy things for Dhanteras and Diwali.  People were worried that adding merchant fees right now might confuse businesses and cause problems in the digital payments system. 

The legal framework for the charges came after Parliament passed the Taxation and Other Laws (Amendment) Bill, 2026, on August 11.  The law changed Section 10A of the Payment and Settlement Systems Act, 2007, allowing the government to let certain fees be charged on specific types of digital payments. 

The NPCI has now said that the implementation will happen right after Diwali, so the next big step will be the official announcement of the rollout date and the specific types of transactions that will be affected.