In a major relief to UPI users, the decision to levy a Merchant Discount Rate of 0.4 per cent on transactions over Rs 2,000 has been deferred, with NPCI on Tuesday saying a new date for the implementation will be decided after Diwali.
According to the National Payments Corporation of India (NPCI) circular issued last month, a 0.4 per cent MDR was to be levied on Person-to-Merchant UPI payments above Rs 2,000 from October 15.
"UPI and Services Steering Committee today decided that, keeping in mind the festive season, Merchant Discount Rate (MDR) on select Person-to-Merchant (P2M) UPI transactions shall be implemented immediately post Diwali on a date to be notified separately," NPCI said in a statement.
The MDR has to be paid by merchants, not consumers, and capped at Rs 300 for transactions of Rs 75,000 or more.
The decision to defer has come amidst allegations by the Opposition, which termed it a tax, and said that the levy on specified UPI transactions above Rs 2,000 will burden consumers.
As per the circular dated September 15, payments between individuals, as well as the vast majority of everyday merchant payments were to remain free.
Essential services, such as railways, telecom, fuel, and insurance, were to attract a flat Rs 5 fee per transaction above Rs 2,000. Capital markets transactions (mutual funds, stockbroking) were to get a lower 0.02 per cent rate, also capped at Rs 300.
The National Payments Corporation, which operates the UPI platform, decided to levy MDR on certain UPI transactions aimed at creating a sustainable revenue framework for the digital payments ecosystem.
As per the NPCI, the amount collected will be shared among banks and other entities in the UPI ecosystem. Of the MDR collected, 40 per cent will go to customers' banks, 30 per cent to payment gateways, 20 per cent to the UPI app and the remaining 10 per cent to the sponsoring bank of the UPI app.
Welcoming the decision, the Confederation of All India Traders (CAIT) said the government's move to defer the proposed MDR charges on UPI transactions is "timely and pragmatic", particularly during the crucial festive and wedding season, when millions of traders and MSMEs depend on higher business volumes.
"Additional transaction costs could have placed an avoidable burden on merchants operating on thin margins and discouraged the wider acceptance of digital payments," CAIT said.
It shared that the decision follows the meeting held on September 30, 2026, when a delegation of around 20 trade leaders met Finance Minister Nirmala Sitharaman and highlighted the implications of the proposed 0.4 per cent MDR on UPI transactions exceeding Rs 2,000.