Fee on Big UPI Merchant Payments Put Off Until After Diwali: How UPI Charges Are Regulated
The National Payments Corporation of India (NPCI) has postponed the planned Merchant Discount Rate (MDR) on some UPI payments. MDR is a small fee a shop pays its bank for accepting a digital payment.
Under an NPCI circular issued on 15 September 2026, a 0.4% MDR was to apply from 15 October 2026 on selected Person-to-Merchant (P2M) UPI payments above ₹2,000.
NPCI's UPI and Services Steering Committee deferred the charge, citing the festive season. A new start date will be announced after Diwali.
The fee is paid by merchants, not by customers. It is capped at ₹300 per transaction, which is reached at payments of ₹75,000 or more (0.4% of ₹75,000 is ₹300).
Person-to-person (P2P) transfers and merchant payments up to ₹2,000 stay free. UPI payments have carried zero MDR since 1 January 2020 under a government mandate.
Payment and Settlement Systems Act, 2007
The Payment and Settlement Systems Act, 2007 (PSS Act) is the main law that controls how money moves electronically in India. It covers systems like UPI, cards, NEFT, RTGS, mobile wallets and ATM networks. It says that no one can run such a payment system without permission from the Reserve Bank of India (RBI). It also makes the RBI the regulator and supervisor of all these systems.
UPI payments have been free for merchants because of Section 10A of the PSS Act and the 2019 notification. The planned 0.4% MDR on bigger merchant payments would be the first change to this zero-fee rule for UPI, which is why its timing and design attract so much attention.
Unified Payments Interface (UPI)
The Unified Payments Interface, or UPI, is an Indian system that lets you send money from one bank account to another instantly using a mobile phone. You only need a UPI ID or a QR code, not the other person's account number. It works 24x7, including on holidays. UPI was built and is run by the National Payments Corporation of India (NPCI).
UPI's success was built on being free for everyone. The deferred 0.4% fee would apply only to larger merchant payments, so everyday transfers between people and small shop payments would 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, including UPI, RuPay cards, IMPS, FASTag (NETC) and AePS. It was set up in 2008 as a not-for-profit company under the guidance of the RBI and the Indian Banks' Association. It operates with authorisation from the RBI under the Payment and Settlement Systems Act, 2007.
NPCI issued the September 2026 circular that set the 0.4% MDR on larger UPI merchant payments. Its steering committee has now deferred the start date to after Diwali, showing how NPCI sets UPI's day-to-day rules within the limits of the law.
- Planned MDR: 0.4% on selected P2M UPI payments above ₹2,000
- Cap: ₹300 per transaction (reached at ₹75,000 and above)
- Original start date: 15 October 2026 (NPCI circular dated 15 September 2026); now deferred to a date to be announced after Diwali
- Decision by: NPCI's UPI and Services Steering Committee
- Who pays: merchants, not customers
- Exempt: P2P transfers, P2M payments up to ₹2,000, small merchants receiving up to ₹1 lakh a month via UPI QR
- Zero MDR on UPI and RuPay debit cards since 1 January 2020
- Legal basis: Section 10A of the PSS Act, 2007 and Section 269SU of the Income-tax Act, 1961