New Delhi: The National Payments Corporation of India (NPCI) has deferred the implementation of revised Merchant Discount Rate (MDR) charges on certain Unified Payments Interface (UPI) transactions until after Diwali, giving merchants and payment service providers additional time to prepare for the new framework.

The UPI and Services Steering Committee took the decision on October 13, keeping the festive season in mind. According to an NPCI statement, the revised rates will come into effect immediately after Diwali, on a date to be announced separately.

The decision postpones the planned October 15 rollout of charges on select merchant transactions. The revised framework is intended to apply to certain higher-value merchant payments, while the majority of everyday UPI transactions will continue without MDR charges.

Which UPI transactions will attract MDR?

Under the revised framework, select merchant categories, including railways, telecommunications, insurance and fuel, will attract a flat MDR of Rs 5 on UPI transactions exceeding Rs 2,000.

For large merchant payments above Rs 2,000, a charge of 0.4% will apply, subject to a maximum of Rs 300, according to the earlier framework outlined by NPCI.

The changes are expected to affect only a small proportion of UPI transactions. Around 4% of merchant transactions are expected to fall within the revised framework, while more than 95% of person-to-merchant (P2M) transactions will remain outside its scope.

Small merchants operating under the person-to-person merchant (P2PM) model will continue to benefit from zero MDR.

The postponement is expected to provide businesses, banks and payment service providers with more time to prepare for the revised charges before they are introduced. The new implementation date will be announced separately.

Will UPI users have to pay for transactions?

Individual UPI users are not expected to face additional charges under the revised MDR framework. There will be no monthly quota or cap on free UPI transactions, and payments covered by the existing free framework will continue without an MDR charge.

Banks have also been advised to ensure that merchants do not pass MDR costs on to customers. This means consumers are not expected to pay an additional fee when making UPI payments under the revised structure.

MDR is a fee associated with processing merchant payments through digital payment systems. The revised framework concerns the charges applicable to certain merchant transactions rather than introducing a general fee for individuals using UPI.

The distinction is important because UPI is widely used for everyday payments, including purchases at shops, online transactions, bill payments and transfers to service providers. The framework is designed to cover only specified categories and higher-value merchant transactions, rather than all payments made through the platform.

Fund to support small merchants

The revised structure will allocate 5% of total MDR collections to a dedicated fund intended to support UPI acceptance among small merchants.

The move is aimed at helping smaller businesses adopt and maintain digital payment facilities. Wider acceptance of UPI among small merchants remains an important part of India’s digital payments ecosystem, particularly for businesses that rely on low-value transactions.

MDR revenue will also be shared among participants in the UPI ecosystem. The collections are expected to help support the expansion of payment infrastructure, cybersecurity measures and innovation.

The revised rates are also expected to remain lower than the charges applicable to card payments and digital wallets, according to the framework outlined earlier.

What happens next?

With the October 15 rollout deferred, merchants and payment service providers will have additional time to prepare for the changes. The revised rates will take effect after Diwali, with NPCI expected to notify the specific date separately.

For consumers, the key takeaway is that the changes are not intended to introduce a general charge on everyday UPI payments. Most person-to-merchant transactions are expected to remain outside the revised framework, while eligible transactions in specified categories will be subject to the new MDR rates once implementation begins.

The impact will therefore depend on the type and value of the merchant transaction, as well as the category in which it falls.