Shopkeepers across India got a festive reprieve this week. The National Payments Corporation of India (NPCI) has deferred the planned merchant discount rate (MDR) on select UPI payments, which was due to start on 15 October 2026, until "immediately post Diwali". Diwali falls on 8 November; the exact start date will be notified separately.
What was planned
- An MDR of 0.4 percent on specified person-to-merchant (P2M) UPI transactions above ₹2,000, capped at ₹300 per transaction.
- A flat ₹5 charge on transactions above ₹2,000 in select sectors, including railways, telecom, insurance and fuel.
MDR is a fee paid by the merchant to the payments system, not by the customer. UPI payments to merchants have been largely MDR-free since 2020.
Why it was deferred
NPCI cited the festive season, when shops see their highest sales. The decision also comes amid a legal challenge: on 28 September the Supreme Court declined to stay the charge but asked the government to explain its basis and legal character, issuing notices to the Centre, RBI and NPCI with four weeks to respond.
What it means for you
- Customers: The charge targets merchant payments above ₹2,000, not money sent between individuals. Some merchants may try to pass the cost on, or nudge customers toward cash for big purchases, once it starts.
- Small shops: Most everyday UPI payments are below ₹2,000 and fall outside the planned charge. For larger bills, a 0.4 percent fee on, say, a ₹10,000 sale is ₹40.
- Businesses with high-value sales: Electronics, jewellery and furniture sellers will feel it most, though the ₹300 cap limits the hit on very large payments.
Market reaction
Fintech stocks reacted sharply to the announcement, with shares of payment companies such as Paytm, MobiKwik and Pine Labs falling up to 7 percent on 13 October, as the deferral delays a new revenue stream for the industry.
What to watch
- The government's response to the Supreme Court.
- NPCI's notification of the new start date after Diwali.
- Whether banks and apps change pricing for merchants or offer incentives.
Paying more through UPI this festive season? Stay alert to scams: read protecting yourself from UPI frauds and our guide to financial scams.
This article is for information only and is not financial advice.
