India has postponed the introduction of Merchant Discount Rate (MDR) charges on certain Unified Payments Interface (UPI) transactions exceeding Rs 2,000 until after Diwali, following concerns raised by traders and businesses about the impact of the new fees during the festive shopping season.
The National Payments Corporation of India (NPCI) announced Tuesday, October 13, that the UPI and Services Steering Committee had decided to delay implementation until the second week of November. The charges were initially scheduled to take effect on October 15, but authorities agreed to provide businesses, payment service providers and consumers with additional preparation time. An official implementation date will be announced later.
Under the proposed framework, select person-to-merchant (P2M) UPI transactions exceeding Rs 2,000 will attract an MDR of 0.4 per cent. This means merchants would pay Rs 8 on a transaction of Rs 2,000 or Rs 40 on a payment of Rs 10,000. However, transactions above Rs 2,000 in certain sectors, including railways, telecommunications, insurance, fuel and agricultural supplies, will be subject to a flat charge of Rs 5.
The government has clarified that the charges will be imposed on merchants rather than directly on consumers. The MDR will also be capped at Rs 300 for transactions worth Rs 75,000 or more. Person-to-person transfers and most routine merchant payments will continue to remain free.
According to the Union Finance Ministry, the proposed charges are intended to support the long-term financial sustainability of India’s digital payment infrastructure. Industry estimates suggest that operating the UPI network costs approximately Rs 20,000 crore annually, covering cybersecurity, fraud prevention, system maintenance, transaction reliability and customer support.
Government officials have argued that relying exclusively on public incentives to maintain the rapidly expanding digital payment network is not financially sustainable, making additional funding mechanisms necessary.
However, the proposal has generated concerns among small businesses and industry representatives who fear that additional transaction expenses could discourage merchants from accepting digital payments.
Mukesh Pandey, founder and managing director of Rupyaapaisa.com, warned that the new charges could place financial pressure on small retailers and service providers that depend heavily on UPI transactions. He suggested that businesses might eventually transfer these costs to customers through higher prices, potentially undermining the affordability that has contributed to UPI’s widespread adoption.
Similarly, Atish Shelar, group CEO of MOS Utility Limited, emphasized that clear communication and adequate preparation would be essential to preventing confusion among merchants and customers. He said businesses should use the extended implementation period to update their payment systems and prepare for the revised fee structure.
The postponement comes during one of India’s busiest retail periods, when digital transactions typically increase significantly because of festive shopping.
While the government maintains that the MDR framework will strengthen the sustainability and security of India’s digital payment ecosystem, businesses are seeking assurances that the additional costs will not discourage digital transactions or place an excessive burden on smaller merchants.
The revised implementation schedule is expected to provide authorities and payment service providers with more time to address industry concerns before the new charges take effect.
