UPI Merchant Fee (MDR) Postponed Until After Diwali: What Changes and What Stays Free
The National Payments Corporation of India (NPCI), the body that runs UPI, said that the Merchant Discount Rate (MDR) on select person-to-merchant (P2M) UPI payments will start right after Diwali, on a date it will notify separately. MDR is the small fee a shop pays on each digital payment it receives.
The fee was due to begin on 15 October 2026. NPCI's UPI and Services Steering Committee pushed it back because of the festive season. The structure of the fee has not changed.
The fee structure: 0.4% on specified P2M UPI payments above ₹2,000, capped at ₹300 per payment (the cap applies for payments of ₹75,000 and above). For essential and low-margin sectors such as railways, telecom, insurance, fuel, utilities and education, a flat ₹5 applies on payments above ₹2,000.
What stays free: all person-to-person (P2P) transfers of any size; all P2M payments up to ₹2,000; and small merchants who receive up to ₹1 lakh a month through their UPI QR codes. Customers pay nothing.
The Finance Ministry has said about 96% of P2M payments will not be affected. It also said MDR is not a tax and is not collected by the government or by NPCI; it is shared among banks, payment service providers and UPI apps to pay for running and expanding UPI.
The legal path was opened in 2026: Parliament amended Section 10A of the Payment and Settlement Systems Act, 2007, so the Centre now decides by notification which payment modes stay charge-free. A September 2026 notification kept UPI payments up to ₹2,000 and RuPay debit card payments free.
Unified Payments Interface (UPI)
UPI is India's real-time payment system. It lets you send money from one bank account to another instantly, at any time, using a mobile phone and a simple ID such as a mobile number or a UPI ID like name@bank. It is built and run by NPCI under the oversight of the Reserve Bank of India (RBI). One UPI app can link many bank accounts, and any UPI app can pay any other, because the system is open and interoperable.
For almost seven years, UPI ran with zero MDR, so banks and apps earned nothing on most merchant payments. The new fee on larger payments to bigger merchants is meant to fund UPI's running costs, while small payments and small shops stay free.
National Payments Corporation of India (NPCI): The Organisation Behind UPI and RuPay
The National Payments Corporation of India, or NPCI, is the organisation that builds and runs most of India's retail digital payment systems. UPI, RuPay cards, IMPS, FASTag, the ATM network that lets you use any bank's ATM, and many more are all run by NPCI. It is not a bank and it does not hold your money. It works like the "railway track" on which banks and apps move money between each other. It was set up by the RBI and the Indian Banks' Association (IBA) and is owned by banks.
The MDR decision was taken by NPCI's UPI and Services Steering Committee, which shows NPCI's role as the operator that sets UPI's rules. NPCI's statement that the fee starts "immediately post Diwali" fixes the timing, while the Centre's notification under Section 10A of the PSS Act decides which payments must stay free.
- Original MDR start date: 15 October 2026; now deferred to a date after Diwali, to be notified by NPCI
- MDR: 0.4% on specified P2M UPI payments above ₹2,000, capped at ₹300 per payment
- Flat ₹5 per payment above ₹2,000 for essential sectors (railways, telecom, insurance, fuel, utilities, education)
- Free: all P2P transfers; P2M payments up to ₹2,000; small merchants receiving up to ₹1 lakh/month via UPI QR
- About 96% of P2M transactions unaffected (Finance Ministry)
- Zero MDR on UPI and RuPay debit cards: since 1 January 2020
- Section 10A of the PSS Act, 2007 amended by the Taxation and Other Laws (Amendment) Act, 2026; in force since 17 August 2026
- UPI record volume: 24.51 billion transactions in August 2026