UPI Merchant Fee (MDR) Postponed: What the 0.4% Charge Means and How UPI Is Paid For
The National Payments Corporation of India (NPCI) has postponed a new fee on some UPI payments made to shops and businesses. The fee was due to start on 15 October 2026.
The fee is called the Merchant Discount Rate (MDR). It is the charge a shop pays to the payment system for accepting a digital payment. It was set at 0.4% on person-to-merchant (P2M) UPI payments above ₹2,000, capped at ₹300 per transaction.
The UPI and Services Steering Committee said the fee will start after Diwali, on a date to be announced separately. It gave the festive season as the reason.
Customers were never meant to pay this fee. Merchants pay it, and banks were told to make sure merchants do not pass it on to buyers.
Person-to-person (P2P) transfers, merchant payments up to ₹2,000, and small merchants receiving up to ₹1 lakh a month through UPI QR codes stay free.
Traders' bodies had raised concerns about the fee with the Union Finance Ministry and welcomed the postponement.
Unified Payments Interface (UPI)
UPI is India's instant payment system that lets you send money from one bank account to another using just a mobile phone. You only need the other person's UPI ID, mobile number or QR code. It works 24 hours a day, every day, and the money moves in seconds. NPCI built UPI and runs it, under the oversight of the Reserve Bank of India (RBI).
For six years UPI ran without any merchant fee, which helped it spread to every street corner. The 0.4% MDR is the first step back towards charging large merchants for high-value payments, to fund the system's servers, security and growth. Its postponement shows how carefully the government is balancing the cost of running UPI against the risk of slowing digital payments.
National Payments Corporation of India (NPCI): The Organisation Behind UPI and RuPay
NPCI is the not-for-profit organisation that builds and runs most of India's retail digital payment systems, including UPI, RuPay, IMPS and FASTag. It is not a bank and does not hold anyone's money. It was set up by the RBI and the Indian Banks' Association (IBA), and it is owned by banks. It works under the Payment and Settlement Systems Act, 2007, with the RBI as its regulator.
NPCI, through its steering committee, decides how a payment fee works in practice: who pays, who gets a share, and from when. Here it used that role to delay the MDR start date until after Diwali.
- Proposed MDR: 0.4% on P2M UPI payments above ₹2,000; cap ₹300 per payment
- Original start date: 15 October 2026; now postponed to a date after Diwali, to be notified
- Flat ₹5 per payment above ₹2,000 for railways, telecom, insurance, fuel, agricultural inputs
- 0.02% (cap ₹300) for mutual funds and stockbroking payments
- P2PM small-merchant limit for zero MDR: ₹1 lakh a month through UPI QR
- About 96% of P2M transactions unaffected (Finance Ministry estimate)
- Zero MDR on UPI and RuPay debit cards since 1 January 2020 (Section 269SU, Income-tax Act; Section 10A, PSS Act, 2007)
- NPCI: incorporated December 2008; promoted by RBI and IBA