Full Breakdown
NPCI Defers UPI Merchant Discount Rate Implementation Until After Diwali
By Drooid · · How we work
Core Decision
On October 13, 2026 the National Payments Corporation of India (NPCI) announced that the proposed Merchant Discount Rate (MDR) on select person-to-merchant (P2M) Unified Payments Interface (UPI) transactions will be implemented immediately after Diwali, with the exact date to be notified later. The rollout, originally slated for October 15, 2026, is therefore postponed to the post-festive period.
Background & Context
A circular issued on September 15 introduced a 0.4 % MDR on UPI payments above INR2,000, capped at INR300 for transactions of INR75,000 or more. The charge was intended to fund UPI’s infrastructure, cybersecurity, fraud prevention and customer support, addressing an estimated annual operating cost of roughly INR20,000 crore. Prior to the proposal, UPI operated with a zero-MDR regime for most merchants since January 2020.
Timeline
- September 15 – NPCI circular announces 0.4 % MDR on eligible P2M transactions.
- October 8 – Media reports of a possible postponement to January 1, 2027.
- October 13, 2026 – NPCI’s UPI and Services Steering Committee decides to defer implementation until after Diwali.
- October 15 – Original MDR start date (now postponed).
- November 2, 2026 – Supreme Court hearing on a writ petition challenging the MDR’s legal basis.
- November 8 – Diwali festival.
Data & Statistics
- UPI processed 24.07 billion transactions worth INR29.37 trillion in September 2026, a 22.6 % year-on-year increase.
- 63.5 % of June 2026 transactions were P2M, while P2P transfers accounted for about 70 % of total value.
- The MDR would affect roughly 4 % of transaction value, leaving 96 % of P2M payments unchanged.
- Approximately 60 million merchants are active on UPI; about 75 % of QR-code merchants have not processed a single transaction above INR2,000.
Official Statements & Responses
- RBI Governor Sanjay Malhotra (quoted on October 7) said a “small fee” would not have a “major impact” on UPI volumes.
- Finance Minister Nirmala Sitharaman clarified that the MDR will be handled by stakeholders and is not a tax.
Criticism & Opposition
- Opposition leader Rahul Gandhi labelled the MDR a “tax” that would ultimately affect consumers.
- Mukesh Pandey, founder of Rupyaapaisa.com, warned that high fees could discourage merchant acceptance of UPI.
Impact / Why It Matters
The deferment offers short-term relief to merchants during the peak festive shopping period, preserving transaction volumes. Analysts note a one-time revenue loss of roughly a third of the quarter’s incremental MDR earnings, as the busiest weeks post-Diwali are excluded. For banks and payment firms, the delay pushes back expected MDR revenue that was projected to fund infrastructure upgrades and fraud-prevention investments.
Conflicting Reports & Gaps
- Some outlets reported that implementation could be as late as January 1, 2027, while NPCI’s statement only specifies “post-Diwali” with no exact date.
- The precise applicability of sector-specific flat fees (INR5 for railways, telecom, insurance, fuel, agricultural inputs) and the 0.02 % rate for capital-market transactions remain unconfirmed.
What’s Next
The Supreme Court is scheduled to hear arguments on the MDR’s legal basis on November 2, 2026. NPCI will notify the exact post-Diwali implementation date separately. Stakeholders—including banks, fintech firms and merchant associations—are awaiting further guidance on operational details and exemption thresholds.