MDR for UPI Merchant Transactions to be Implemented After Diwali; Date to be Announced Later

The National Payments Corporation of India (NPCI) announced on Tuesday that the Merchant Discount Rate (MDR) for select Person-to-Merchant (P2M) UPI transactions will be implemented shortly after Diwali. The NPCI stated that the specific date will be announced later. Previously, it had been announced that an MDR of 0.4% would apply to P2M UPI transactions exceeding ₹2,000, effective from October 15. This charge is to be borne by the merchants, not the consumers.
The charge was capped at a maximum of ₹300 for transactions amounting to ₹75,000 or more. Peer-to-peer (P2P) transactions and standard small-scale merchant transactions will remain free of charge.
Reason for Introducing MDR
The Central Government has clarified that the MDR is being implemented to cover the costs associated with the infrastructure required for the UPI system, including cybersecurity, fraud prevention, and customer service. According to a Q&A document released by the Ministry of Finance in September, the annual cost to sustain UPI operations is approximately ₹20,000 crore. The government’s stance is that relying solely on government-provided financial incentives is not a sustainable long-term solution.

Since January 2020, the MDR for RuPay debit card transactions and BHIM-UPI transactions had been set at zero. This measure was intended to promote digital payments.
Subsequently, the government implemented various incentive schemes to support the UPI ecosystem. For the 2024-25 financial year, the government announced a scheme worth ₹1,500 crore to encourage BHIM-UPI transactions involving small merchants, for amounts up to ₹2,000.
Under this scheme, no Merchant Discount Rate (MDR) was charged on eligible transactions of up to ₹2,000; instead, the government provided the incentive amount.

Concerns had been raised because the implementation of the MDR, scheduled for October 15, would coincide with the Diwali shopping season—a period that typically sees a significant surge in consumer spending.

Furthermore, the decision to postpone the implementation until after Diwali was made in light of the fact that payment service providers required additional time to upgrade their systems and complete the necessary technical preparations to comply with the new regulations.