India’s digital payment system is preparing for a major change as the proposed UPI merchant fees above ₹2,000 have been postponed until after Diwali 2026.
The National Payments Corporation of India (NPCI) has deferred the introduction of a 0.4% Merchant Discount Rate (MDR) on selected UPI payments made to businesses.
The new charges were originally scheduled to begin on October 15, 2026. However, authorities have decided to delay their implementation during the festive shopping season.
The decision offers temporary relief to retailers and payment service providers as millions of Indians prepare for Diwali purchases.
Importantly, ordinary consumers will not be required to pay the proposed merchant fee.
What Is the Latest UPI Fee Announcement?
According to reports published on October 13, NPCI has postponed the implementation of MDR charges on certain person-to-merchant transactions exceeding ₹2,000.
The proposed fee is 0.4% of the eligible transaction amount, subject to a maximum charge of ₹300.
The decision followed discussions involving payment companies, banks and merchant representatives.
Retailers had raised concerns about introducing additional payment costs during the festive shopping period.
The implementation has therefore been delayed until after Diwali, which falls on November 8, 2026.
However, an exact revised implementation date has not yet been announced.
What Is the Merchant Discount Rate?
Merchant Discount Rate, commonly called MDR, is a fee associated with accepting digital payments.
It helps cover the cost of processing transactions through payment networks, banks and technology service providers.
Under the new UPI framework, the proposed MDR is 0.4% for specified merchant payments exceeding ₹2,000.
For example, an eligible transaction of ₹5,000 would attract a merchant fee of ₹20.
Similarly, a ₹10,000 payment would attract a charge of ₹40.
The maximum fee is capped at ₹300 per transaction.
This charge is intended for eligible merchants, not customers making payments.
Will Customers Pay Extra for UPI Transactions?
No. The government has clarified that ordinary UPI users will not face transaction charges under the new framework.
People transferring money to friends, relatives or other individuals through UPI will continue to enjoy free transactions, regardless of the amount.
For example, sending ₹5,000 or ₹20,000 to a family member through a normal person-to-person UPI transfer will remain free.
Payments made to merchants for amounts up to ₹2,000 will also remain free.
The proposed MDR applies only to specified merchant transactions above the threshold.
This distinction is important because the new policy does not mean every UPI payment above ₹2,000 will attract a fee.
Which Merchants Will Be Affected?
The proposed charges primarily concern eligible businesses accepting higher-value UPI payments.
These may include larger retailers and businesses that receive significant digital payment volumes.
Small merchants receiving less than ₹1 lakh per month through eligible UPI QR-code payments are exempt under the reported framework.
The government has stated that approximately 96% of person-to-merchant UPI transactions will remain unaffected.
The aim is to protect small businesses and everyday transactions while introducing a limited fee for higher-value merchant payments.
Businesses should check their eligibility and payment provider’s official guidance once the revised implementation date is announced.
Why Were the UPI Charges Postponed?
The decision comes during India’s important festive shopping season.
Diwali is a major period for spending on clothing, electronics, jewellery, household products and other goods.
Retailers often experience increased customer activity during the weeks surrounding the festival.
Introducing a new payment charge during this period could have created additional costs and technical challenges for businesses.
Payment service providers also require time to update their systems and explain the new framework to merchants.
By delaying implementation, NPCI has provided additional preparation time while avoiding disruption during the festive period.
How Will the New UPI Charges Work?
Under the announced framework, the fee will depend on the transaction amount and merchant eligibility.
For eligible transactions, the proposed charges are:
- ₹2,000 or below: No MDR.
- ₹3,000: ₹12 MDR.
- ₹5,000: ₹20 MDR.
- ₹10,000: ₹40 MDR.
- ₹25,000: ₹100 MDR.
- ₹75,000: ₹300 MDR.
These examples apply only to transactions covered by the proposed fee.
Exempt merchants and ordinary person-to-person transfers will not be charged under these rules.
The government has also clarified that MDR is not a tax collected by the government or NPCI.
Instead, it supports participants involved in processing digital payments.
Why Is the Government Introducing Merchant Fees?
UPI has become one of India’s most widely used payment systems.
Millions of individuals and businesses rely on it for fast and convenient money transfers.
As transaction volumes increase, banks and payment companies must maintain reliable technology, security systems and payment infrastructure.
The proposed merchant fee is intended to help support these operational costs.
The government has emphasised that the framework aims to balance the long-term sustainability of UPI with affordable digital payments.
Protecting consumers and small businesses remains an important part of the policy.
Will PhonePe, Google Pay and Paytm Users Be Affected?
People using popular UPI applications such as PhonePe, Google Pay and Paytm can continue making ordinary payments without paying the proposed MDR.
The changes concern eligible merchant transactions rather than the choice of payment application.
A customer paying a shopkeeper through any supported UPI application will not automatically face an additional charge simply because the payment exceeds ₹2,000.
The applicable merchant fee will depend on the transaction category and exemption rules.
Users should rely on official announcements rather than unverified social media messages about new UPI charges.
When Will the New UPI Fees Begin?
The original implementation date was October 15, 2026.
However, the rollout has now been postponed until after Diwali.
As of October 13, no revised date has been officially announced.
NPCI and payment service providers are expected to communicate the updated schedule before implementation.
Businesses should monitor official notifications for further information.
Conclusion
The decision to postpone UPI merchant fees above ₹2,000 until after Diwali 2026 provides temporary relief to retailers during the festive season.
The proposed 0.4% MDR will apply only to selected higher-value merchant transactions, with a maximum fee of ₹300.
Ordinary users will continue to make person-to-person UPI transfers without transaction charges, while most merchant payments will remain free.
The next major development will be NPCI’s announcement of the revised implementation date.
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