Festive breather for traders: UPI MDR rollout deferred till Diwali

The National Payments Corporation of India (NPCI) has deferred the implementation of the merchant discount rate (MDR) on select Unified Payments Interface (UPI) transactions until after Diwali, citing the festive season. The new implementation date will be notified separately, NPCI said in a statement on October 13.

The decision was taken by the UPI and Services Steering Committee. The MDR framework was originally scheduled to come into effect from October 15.

The deferment comes amid concerns over the proposed charges, which would apply to specified person-to-merchant (P2M) transactions above ₹2,000. The framework has also faced a legal challenge in the Supreme Court.

What the MDR framework proposes

Under the announced framework, select merchant UPI transactions above ₹2,000 will attract an MDR of 0.4%, capped at ₹300 for transactions of ₹75,000 and above. Transactions above ₹2,000 in specified sectors, including railways, telecommunications, insurance and fuel, will attract a fixed charge of ₹5. Payments relating to mutual funds, securities and stockbrokers will carry an MDR of 0.02%, subject to the prescribed cap.

The charges are intended to apply within the merchant payments ecosystem, rather than directly to customers. Person-to-person (P2P) transactions will remain free, while merchant payments up to ₹2,000 and transactions covered under the zero-MDR framework for small merchants will also remain exempt.

The government had earlier said approximately 96% of merchant UPI transactions would remain unaffected by the framework.

Government says consumers will not pay

In a September 15 clarification, the Ministry of Finance said the framework was designed to support the long-term sustainability of UPI while protecting individuals and small merchants from additional charges.

“MDR is neither a tax nor a charge collected by the Government or NPCI,” the ministry said, adding that the revenue would be distributed among payment ecosystem participants, including banks and payment application providers, to support UPI operations and expansion.

The government also said banks had been advised to ensure merchants did not pass MDR costs on to customers. “UPI will continue to remain completely free for all person-to-person transactions, irrespective of the amount transferred,” it said.

The framework has drawn scrutiny over the basis for imposing charges on select transactions and the potential impact on merchant payment practices. The Supreme Court has sought responses from the Centre, the Reserve Bank of India and NPCI on a petition challenging the framework, while declining to grant an interim stay.