UPI charges on select merchant transactions will be implemented immediately after Diwali, the National Payments Corporation of India (NPCI) said on Tuesday, in a move that will introduce a Merchant Discount Rate (MDR) for some person-to-merchant digital payments. The exact implementation date will be notified separately.
The decision was taken by the UPI and Services Steering Committee, according to a statement posted by NPCI on X. The committee said the timing took into account the festive season, when digital payment activity typically becomes particularly important for merchants and consumers.
Under the framework reported by Hindustan Times, merchants accepting UPI payments above ₹2,000 will face a fee of 0.4% of the transaction value for applicable person-to-merchant payments. The charge will be capped at ₹300 per transaction. Person-to-person transfers will remain exempt from the proposed MDR.
A separate flat fee of ₹5 will apply to payments above ₹2,000 made to merchants in four specified categories: railways, telecom services, insurance and fuel. The NPCI statement, as reported, did not separately specify all categories of merchant transactions covered by the broader framework, leaving the final scope dependent on the notification to be issued before implementation.
MDR is a fee charged to merchants for processing digital payments. The proposed change therefore shifts part of the cost of selected UPI transactions to businesses rather than directly charging consumers for person-to-person transfers. The effect on individual transactions will depend on the merchant category, transaction value and the final rules notified by the authorities.
The framework follows Parliament’s clearance of the Taxation and Other Laws (Amendment) Bill, 2026, on August 11. The amendment changed Section 10A of the Payment and Settlement Systems Act, 2007, to give the government the power to permit charges on specified digital payment modes.
The decision comes as UPI has become a routine payment channel for shops, service providers, transport-related transactions and other everyday purchases. For small businesses, the operational question will be how the charges are applied, collected and reflected in payment settlements once the implementation rules are published.
RBI Governor Sanjay Malhotra said the small fee would not have a major impact on UPI volumes, according to the report. The proposed system, however, distinguishes between different types of transactions rather than applying a uniform charge to all UPI payments.
NPCI is expected to notify the implementation date and provide the operational details governing the eligible merchant categories, applicable rates and settlement process after the festive period.
