UPI MDR rollout deferred until after Diwali: What consumers and merchants need to know

Consumers can carry on with routine UPI transactions as the National Payments Corporation of India (NPCI) has deferred the proposed 0.4 per cent Merchant Discount Rate (MDR) on select merchant transactions above Rs 2,000 until after Diwali.

The decision was announced on Tuesday by NPCI’s UPI and Services Steering Committee, which said the revised implementation date would be notified separately. The charges had earlier been scheduled to take effect from October 15.

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The proposed framework has drawn attention because UPI is widely used for everyday purchases, from groceries and restaurant bills to electronics and other high-value shopping. Here is what the decision means for consumers, shopkeepers and businesses.

Will customers have to pay extra for UPI?

Not automatically. MDR is a payment-processing fee charged to the merchant, rather than a fee that is automatically collected from the customer.

Under the proposed framework, a 0.4% MDR applies to specified person-to-merchant (P2M) transactions above ₹2,000. Person-to-person transfers remain free, while payments of up to ₹2,000 and eligible transactions involving small merchants are exempt. The Finance Ministry has said that approximately 96% of merchant transactions would remain unaffected.

This means a customer paying a friend, splitting a restaurant bill through a person-to-person transfer or making an eligible small-value merchant payment should not assume that the proposed MDR applies.

How much would proposed UPI MDR cost?

The proposed 0.4% rate would translate into the following amounts for an eligible merchant transaction:

• ₹5,000 payment: ₹20 MDR

• ₹10,000 payment: ₹40 MDR

• ₹20,000 payment: ₹80 MDR

These are illustrative calculations, not additional amounts that customers must pay at the checkout. The fee is intended to be borne by the merchant under the proposed arrangement, and the actual applicability depends on the transaction and merchant eligibility rules.

For transactions of ₹75,000 and above, the announced framework provides a cap of ₹300 per transaction.

Why was the implementation deferred?

NPCI said the decision was taken keeping the festive season in mind. Diwali is a particularly important period for retail businesses, with consumers spending on clothing, electronics, appliances, gifts and other goods.

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The deferment gives merchants and payment-service providers additional time before the proposed charges are implemented. It also avoids introducing the change immediately before a period of heavy shopping and high transaction volumes.

The decision comes after the Reserve Bank of India (RBI) raised its repo rate by 25 basis points to 5.50% on October 7, citing inflationary pressures. The rate increase can put pressure on borrowing costs, although the effect on individual households and businesses varies.

Vivek Iyer, Partner at Grant Thornton Bharat, said the monetary-policy backdrop helps explain the timing. “The RBI recently increased the repo rate by 25 basis points given the need to rein in inflation both the headline and core measures. This has a tendency to dampen the sentiment ahead of the festive season and hence the UPI MDR delay in implementation doesn’t come as a surprise,” Iyer said.

What does deferment mean for shopkeepers?

For merchants, particularly small retailers, the decision provides temporary relief from an immediate change in payment-processing costs.

Sumit Agarwal, National Joint General Secretary of the Confederation of All India Traders (CAIT), welcomed the move and said the organisation had raised the issue with the government.

“A strong digital economy must also have financially empowered merchants. We are grateful to the Hon’ble Prime Minister and the Hon’ble Finance Minister for understanding the concerns of traders and deferring the proposed MDR charges during this critical festive season. This decision will help preserve traders’ confidence in digital payments and reinforce the partnership between the government and the trading community in building a stronger, more inclusive digital India,” Agarwal said.

Shweta Patange, Associate Director at Nangia Global, said the deferment of UPI MDR until after Diwali was a welcome relief for consumers and small traders, ensuring that everyday digital payments remained free during the festive season. “It protects merchant margins, preserves consumer confidence and gives banks, payment aggregators and fintechs time to prepare systems for classification, reconciliation and settlement,” she added.

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She said the narrow scope, with P2P payments, transactions up to ₹2,000 and small merchants exempt, appropriately balances payment-system viability with financial inclusion. “Clear final rules, predictable implementation timelines and proportionate merchant communication will now be critical to preserving trust and ensuring a smooth transition,” she said.

For small businesses operating on thin margins, the eventual cost will depend on the number of eligible transactions they receive and the final rules. Larger retailers may have more flexibility to absorb or manage payment-processing costs.

Has the proposed UPI MDR been cancelled?

No. The October 13 announcement is a deferment, not a cancellation. NPCI has said that implementation will take place after Diwali, with the specific date to be announced separately.

Consumers should not interpret the announcement as confirmation that all UPI payments will become chargeable. The proposal applies to specified merchant transactions, while person-to-person transfers and eligible small-merchant payments remain exempt under the announced framework.

What consumers should remember

There is no basis to assume that a new MDR fee will automatically be added to every UPI payment. The next important development will be NPCI’s notification confirming the effective date and applicable conditions.