UPI MDR Charges: Will charges be waived from October 15? Merchants may get major relief ahead of the festive season..

UPI MDR Charges: Preparations were underway to implement the Merchant Discount Rate (MDR) on UPI payments starting October 15, 2026. However, this could now be deferred until January 2027. With less than a week remaining before the rule takes effect, merchant associations, fintech firms, and payment service providers have urged the NPCI to postpone it. According to sources, the National Payments Corporation of India (NPCI) may take a major decision on this matter within the next two days. Discussions with the Ministry of Finance regarding this issue are also ongoing.

**Traders Appeal During the Festive Season**
The industry states that it is not yet fully prepared to adopt this new system. The primary reasons cited are the confusion surrounding varying MDR rates, policies, and implementation procedures. With shopping for Diwali and other major festivals set to begin soon, entities within the payment industry argue that the decision should be deferred until the festive season concludes.

The government also anticipates that imposing MDR during festive sales would increase the cost of doing business. Inflation is already impacting the market, putting pressure on the purchasing power of the general public. If traders face the burden of additional charges, they might pass the cost on to customers in some form, potentially dampening consumer enthusiasm for shopping during the festive season.

**What is the New MDR Rule?**
MDR is the fee that merchants pay to banks for accepting digital payments. Last month, the UPI Steering Committee fixed the MDR at 0.4 percent (40 basis points) for transactions exceeding ₹2,000. If this rule is implemented, a shopkeeper or merchant would have to pay ₹8 for a UPI payment of ₹2,000. Similarly, a fee of ₹40 would be deducted for a transaction of ₹10,000. The NPCI had decided to implement this system starting October 15, 2026. However, the industry now states that there is a lack of technical and policy clarity, making immediate implementation difficult.

**UPI System More Complex Than Card Payments**
The UPI framework appears far more complex compared to card payments. Generally, merchants accepting card payments have assigned category codes; card networks process and verify transactions based on these codes, and the rates across card networks are largely uniform. In contrast, distinct rates have been set for different types of UPI services.

Separate rates apply to utility bills (such as electricity and water), loan repayments, and capital market investments. Interestingly, many of these payments are not even permitted via cards; for instance, the RBI does not allow the use of credit cards for loan repayments or stock market investments. Before the advent of UPI, these transactions were handled via net banking, IMPS, NEFT, or RTGS. While charges did apply to these methods, they did not utilize an MDR system like that of cards; instead, banks levied charges on both the sender and the receiver.

**Significant Complexity in Loan and Stock Market Transactions**
Capital market companies have expressed their concerns regarding this matter to the market regulator. Broking firms argue that when a customer deposits funds into their trading account, the process resembles a direct peer-to-peer (P2P) transfer between two individuals. Broking companies do not earn direct revenue from these funds; therefore, imposing an MDR on them is unjustified.

Another major complication concerns loan installments. According to NPCI guidelines, a flat fee of ₹5 applies to loan payments made via AutoPay mandates. However, customers with small loans often lack the required balance in their accounts, causing the auto-debit to fail. When the customer subsequently pays the installment manually, the system treats it as a standard financial transaction, thereby attracting a steep MDR charge of 0.4 percent.

While the NPCI has clarified that a fee of ₹5 applies to all types of loan payments, banks and payment aggregators lack the technical capability to distinguish between general financial transactions and loan repayments. The entire industry has sought more time from the NPCI to address these shortcomings.

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