# NPCI defers 0.4% UPI merchant fee, due on 15 October, until after Diwali

URL: https://upsc.help/current-affairs/2026-10-14/upi-mdr-deferred-after-diwali/
Date: 14 October 2026 (2026-10-14)
Source: The Hindu, Business
UPSC papers: GS3
Publisher: upsc.help (Pratidin), free and open-source UPSC Civil Services current affairs. Not affiliated with UPSC. Every fact was checked against the source reports by a separate review before publishing.

**In one line:** NPCI has postponed a 0.4% merchant fee on larger UPI payments, which was to begin on 15 October 2026, to a date after Diwali, without changing its design.

The National Payments Corporation of India (NPCI) said on 13 October 2026 that the merchant discount rate (MDR) on select Unified Payments Interface (UPI) payments, due to start on 15 October, will instead be "implemented post-Diwali immediately on a date to be notified separately". The decision was taken by the UPI and Services Steering Committee, with the festive season cited as the reason. MDR is the fee a merchant's bank and the payment system charge the merchant for accepting a digital payment. Customers are not charged directly, and person-to-person (P2P) transfers stay free whatever the amount. Traders' bodies had objected to the new costs.

Under the framework announced for 15 October, a 0.4% MDR applies to eligible person-to-merchant (P2M) UPI payments above ₹2,000, with the charge capped at ₹300. Merchant payments of ₹2,000 or less stay at zero MDR. A flat ₹5 per transaction applies to specified essential-sector payments above ₹2,000, such as railways, telecom, insurance and fuel. Small merchants receiving up to ₹1 lakh a month through UPI stay at zero MDR. The deferral changes only the start date, not these terms.

The fee marks a shift from the zero-MDR regime in force since 1 January 2020. Section 10A of the Payment and Settlement Systems Act, 2007, inserted by the Finance (No. 2) Act, 2019, barred banks and system providers from charging MDR on prescribed electronic modes, including BHIM-UPI and RuPay debit cards. Since then, the government has reimbursed banks through budgetary incentives. The question is who should bear the cost of running and expanding the system. RBI Governor Sanjay Malhotra has said a "small fee" would not have a "major impact" on UPI volumes. Traders' groups argue that the fee adds to their costs. Though customers are not charged directly, merchants may pass the cost on through prices.

## Prelims facts

- On 13 October 2026, NPCI's UPI and Services Steering Committee deferred the UPI merchant discount rate, due from 15 October, to a date after Diwali.
- The framework sets a 0.4% MDR on eligible P2M UPI payments above ₹2,000, capped at ₹300; payments up to ₹2,000 and P2P transfers stay free.
- Small merchants receiving up to ₹1 lakh a month through UPI remain at zero MDR; specified essential-sector payments above ₹2,000 attract a flat ₹5.
- Zero MDR on UPI and RuPay debit cards has applied since 1 January 2020 under Section 10A of the Payment and Settlement Systems Act, 2007.
- NPCI, which operates UPI, was incorporated in December 2008 as a not-for-profit company, a joint initiative of the RBI and the Indian Banks' Association.

## Quick recall

- **Original start date of the UPI MDR?** 15 October 2026; deferred on 13 October to a date after Diwali.
- **Which NPCI body took the deferral decision?** The UPI and Services Steering Committee.
- **MDR rate on eligible P2M UPI payments above ₹2,000?** 0.4%, capped at ₹300.
- **Flat fee on specified essential-sector UPI payments above ₹2,000?** ₹5 per transaction.
- **Monthly UPI receipts up to which a small merchant stays at zero MDR?** ₹1 lakh.
- **Since when has UPI been at zero MDR?** 1 January 2020.
- **Which section of the Payment and Settlement Systems Act, 2007 bars MDR on prescribed modes?** Section 10A, inserted by the Finance (No. 2) Act, 2019.
- **When was NPCI incorporated, and by whose initiative?** December 2008; a joint initiative of the RBI and the Indian Banks' Association.

## Prelims practice question

With reference to the UPI merchant discount rate (MDR) framework of 2026, consider the following statements:
1. MDR is charged to the customer making the payment.
2. Person-to-person UPI transfers are exempt from MDR.
3. Merchant payments of ₹2,000 or less attract zero MDR.
How many of the statements given above are correct?

(a) Only one
(b) Only two
(c) All three
(d) None

Answer: (b) Only two. Statement 1 is wrong: MDR is charged to the merchant, not added to the customer's payment. Statements 2 and 3 are correct: P2P transfers stay free, and merchant payments up to ₹2,000 remain at zero MDR.

## UPSC previous-year questions this connects to

- UPSC Prelims 2017, Prelims: Which of the following is the most likely consequence of implementing the 'Unified Payments Interface (UPI)'? (a) Mobile wallets will not be necessary for online payments. (b) Digital currency will totally replace the physical currency in about two decades. (c) FDI inflows will drastically increase. (d) Direct transfer of subsidies to poor people will become very effective. (https://upsc.help/pyq/prelims/#q340)
- UPSC Mains 2022, GS3: Is inclusive growth possible under market economy? State the significance of financial inclusion in achieving economic growth in India. (https://upsc.help/pyq/q163-inclusive-growth-possible-under-market-economy-state/)
  How to use this story in the answer: Use the UPI MDR design to show how a market-based payment system can be priced to protect inclusion of small users.
- UPSC Mains 2026, GS3: What do you mean by Digital Rupee? In this context, explain the working and progress of India's Central Bank Digital Currency (CBDC). (https://upsc.help/pyq/q014-do-you-mean-digital-rupee-context-working/)

## Mains practice question

Should UPI remain free for merchants? Discuss the case for and against reintroducing a merchant discount rate on UPI payments. (150 words)

### Model answer

The merchant discount rate (MDR) is the fee a merchant pays for accepting digital payments. UPI has been at zero MDR since 1 January 2020; a 0.4% fee on larger merchant payments, due on 15 October 2026, has now been deferred until after Diwali.

## Case for an MDR
- Running the system has costs; under zero MDR, the government reimburses banks.
- It is targeted: small payments, P2P transfers and small merchants stay free; the fee is capped at ₹300.
- The RBI Governor has said a small fee would not have a major impact on volumes.

## Case against
- Traders say it adds to their costs.
- Merchants may pass the cost on through prices, so customers could pay indirectly.

## Way forward
- Phase in the fee with clear notice, as the deferral allows.

A calibrated MDR can fund the system while protecting small users.

## The basics

## Why this matters

UPI is the backbone of India's digital payments, and its cost model is a live policy question. For six years merchants have paid nothing to accept UPI. The planned merchant discount rate, now pushed to after Diwali, changes that for larger payments. Aspirants should know what MDR is, who runs UPI, what the law says, and how the new fee is designed.

## What a merchant discount rate pays for

When a customer pays a shop digitally, several parties do work: the customer's bank, the merchant's bank (the acquirer), the app or payment service provider, and the network. The Merchant discount rate is the fee charged to the merchant to pay for this chain. Under zero MDR, that cost is met through government incentives instead.

## How the new fee is designed

## How we got here

The legal basis of zero MDR is in Payment and Settlement Systems Act, 2007, and the operator is described in National Payments Corporation of India.

## Sources

- https://www.freepressjournal.in/mumbai/upi-mdr-charges-deferred-until-after-diwali-by-npci-mumbai-traders-welcome-relief-from-04-fee
- https://www.analyticsinsight.net/news/npci-defers-upi-mdr-charges-until-after-diwali-what-merchants-should-know
- https://newsonair.gov.in/upi-mdr-to-be-implemented-after-diwali/
- https://www.kotakneo.com/news/regulations/upi-mdr-october-15-0-4-percent-charge-above-2000/
- https://www.relakhs.com/upi-charges-new-rules-2026/
- https://superkalam.com/current-affairs/articles/upi-zero-mdr-policy-explained-who-pays-for-free-digital-payments