UPI payments above ₹2,000 to attract 0.4% MDR after Diwali? Who pays, who is exempt and when charges begin

UPI payments above ₹2,000 could soon attract merchant charges of 0.4% under a proposed framework. However, ordinary consumers will continue to make UPI payments free of direct charges, while small merchants and essential services will receive exemptions or concessional rates.

When will UPI MDR charges begin?

The National Payments Corporation of India (NPCI) had originally scheduled the new Merchant Discount Rate (MDR) framework for October 15, 2026. However, its UPI and Services Steering Committee deferred implementation on October 13, citing the festive season.

NPCI indicated that the framework would take effect immediately after Diwali, with the exact date to be notified separately.

This has raised questions about whether charges could begin from November 9 or be postponed until January 1, 2027.

The Financial Express had earlier reported, citing sources, that implementation could be deferred until January. However, NPCI has not officially confirmed either date.

How much will merchants pay?

Under the proposed framework, eligible person-to-merchant (P2M) UPI transactions exceeding ₹2,000 will attract an MDR of 0.4%, capped at ₹300 for payments of ₹75,000 and above.

For example, a retailer receiving ₹5,000 through UPI would pay ₹20, while a ₹10,000 transaction would attract ₹40. A ₹50,000 payment would cost the merchant ₹200.

However, the charge applies only to specified merchant categories, not every UPI transaction exceeding ₹2,000.

Who will remain exempt?

According to the Finance Ministry, approximately 96% of UPI merchant transactions will remain unaffected by the proposed charges.

Person-to-person transfers will continue to be free, irrespective of the amount. Merchant payments up to ₹2,000 will also remain exempt.

Eligible small merchants classified under the Person-to-Person-Merchant (P2PM) category, receiving up to ₹1 lakh monthly through UPI QR payments, will retain zero-MDR benefits.

Certain essential services, including specified railway, fuel, insurance, telecommunications and agricultural transactions, will attract a concessional flat charge of ₹5 on payments exceeding ₹2,000.

Capital market transactions involving mutual funds, securities and stockbrokers will attract a lower MDR of 0.02%, capped at ₹300.

Eligible recurring payments through UPI AutoPay, including SIPs and subscriptions, will remain exempt.

Will customers have to pay extra?

The government has clarified that MDR is payable by merchants, not customers. Banks have been advised to prevent merchants from directly passing on these charges, while UPI applications cannot impose additional platform fees.

However, retailers could potentially adjust product prices or discounts to absorb higher payment-processing expenses.

Why is MDR being introduced?

UPI has operated under a zero-MDR regime since January 2020. However, maintaining digital payment infrastructure involves substantial expenditure on technology, cybersecurity and fraud prevention.

Industry estimates cited by the Finance Ministry suggest annual UPI infrastructure costs of approximately ₹20,000 crore.

The proposed framework aims to generate revenue for banks and payment providers while protecting smaller transactions.

Nevertheless, concerns remain. An Indian School of Business survey of 722 street vendors found that 53% of respondents in Tier 1 cities and 45% each in Tier 2 and Tier 3 cities could reduce UPI acceptance if charges were introduced.

For now, merchants must await NPCI's formal implementation notification, while consumers can continue making UPI payments without direct MDR charges.