NPCI Defers UPI Merchant Fees Until After Diwali, With New Start Date Still Pending

October 15 Rollout Paused Ahead of Festive Sales

The National Payments Corporation of India (NPCI) has postponed merchant charges on selected Unified Payments Interface (UPI) payments, replacing an October 15, 2026 start date with implementation immediately after Diwali. The festival falls on November 8, but the precise date for introducing the charges has not been announced.

The decision leaves a proposed 0.4% merchant discount rate (MDR) on eligible payments above Rs 2,000 awaiting implementation. It also comes before a Supreme Court hearing scheduled for November 2 on a challenge to the framework, creating two separate issues to watch: the legal proceedings and the operational timetable.

NPCI, which operates India's retail payments and settlement infrastructure, confirmed the postponement in its October 13 statement, issued in Mumbai. The announcement attributes the decision to the UPI and Services Steering Committee and cites the festive season.

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 at a date to be notified separately.

The statement postpones implementation rather than withdrawing the framework. It does not establish January 1, 2027 as the replacement deadline, despite earlier suggestions of that date. It also does not confirm whether the proposed rates, exemptions or thresholds will change.

For merchants, the immediate effect is to avoid introducing a new payment processing expense during festive trading. For banks and payment companies, the decision means preparations must continue without a firm activation date.

What Merchants Would Pay

MDR is a payment processing charge borne by the merchant, rather than the person making the purchase. Under the framework announced on September 15, the standard rate would be 0.4% of the full value of an eligible merchant payment above Rs 2,000, not just the portion exceeding that threshold.

The Department of Financial Services sets out the proposed structure in its September 15 FAQ. That document still lists October 15 as the effective date. NPCI's later announcement supersedes that timetable.

The standard calculation produces a Rs 12 charge on a Rs 3,000 purchase and Rs 200 on a Rs 50,000 purchase. At Rs 75,000, the fee reaches Rs 300, which is also the maximum for larger eligible payments. A Rs 1 lakh purchase would therefore cost the merchant Rs 300 rather than the Rs 400 generated by an uncapped 0.4% calculation.

Different rates apply to specified sectors. Eligible transactions above Rs 2,000 in railways, telecommunications, insurance, fuel and agricultural inputs would attract a flat Rs 5 charge. Capital market transactions, including payments involving mutual funds, securities, stockbrokers and dealers, would carry a 0.02% rate capped at Rs 300.

The standard commercial rate is therefore 20 times the capital market rate before either cap applies. The category assigned to a merchant matters as much as the amount paid.

The FAQ says this framework concerns payments directly between customer and merchant bank accounts. RuPay credit cards linked to UPI and approved credit lines operate under separate credit product rules, so their charges should not be confused with this proposal.

Consumers and Most Small Payments Stay Exempt

Person to person transfers would remain free for both sender and recipient. Merchant payments of Rs 2,000 or less would also remain outside the proposed MDR, including payments accepted by large businesses.

The government has put the share of merchant transactions unaffected by the revised framework at around 96%. Its September FAQ gives a related but differently framed figure: more than 95% of UPI merchant transaction volume consists of payments up to Rs 2,000. These figures point to protection for most payments by number, not necessarily most of their combined monetary value.

Merchants would not be permitted to pass MDR directly to customers while accepting UPI. The FAQ also prohibits UPI app providers from imposing a platform fee or another charge for a UPI payment. There would be no monthly quota after which individual consumers begin paying transaction fees.

Abizer Diwanji of Neostrat Advisors said the immediate effect would fall on merchant profitability rather than consumer demand. Describing who would bear the proposed charge, he said:

The consumer was never going to be impacted,

That distinction is central to the dispute. A ban on charging customers directly does not remove the expense from a business. It places that expense within the merchant's operating costs.

Small Merchant Status Depends on Monthly Receipts

The exemption for the smallest vendors is separate from the Rs 2,000 transaction threshold. Merchants classified under the Person to Person Merchant (P2PM) framework would remain exempt even when an individual payment exceeds Rs 2,000.

The government FAQ describes P2PM vendors as receiving up to Rs 1 lakh per month through UPI QR payments directly into their accounts. Banks and payment providers monitor incoming payments. A merchant receiving more than Rs 1 lakh a month for three consecutive months is moved into the ordinary P2M category.

This makes account classification important. A single purchase above Rs 2,000 does not automatically expose an exempt P2PM vendor to MDR. Conversely, a business moved into P2M would need to consider the transaction threshold and any applicable sector rate.

GST registration is not required for P2PM protection, according to the FAQ. Existing QR codes and soundboxes would continue to function, without merchants having to replace their physical payment displays.

A separate exemption for businesses with annual turnover of up to Rs 40 lakh was reportedly under consideration. NPCI's October 13 announcement does not confirm that proposal. It should not be treated as an approved rule or confused with the existing monthly P2PM threshold.

The FAQ also says recurring UPI AutoPay payments carry no prescribed MDR. That exemption covers automated standing instructions such as recurring utility payments, streaming subscriptions and investments, rather than every payment made to those sectors.

Festive Relief Comes With Preparation Problems

Merchants and fintech companies had requested more time before implementation. Operational issues were also reported as a consideration, although NPCI's published statement expressly cites only the festive season.

Kunal Jhunjhunwala, founder of airpay, said the pause would help merchants maintain stable processes during an important sales period. He explained the benefit in these terms:

Keeping costs and processes steady during this period lets businesses focus on serving their customers,

Jhunjhunwala said the extra time would allow merchants handling larger payments to understand how MDR would apply and prepare with their payment partners. He also called for clear communication from banks and providers as the revised date approaches.

The delay creates a different problem for payment companies that had already begun merchant outreach. One company source described confusion caused by preparations for a date that no longer applies. The pause therefore reduces an immediate expense for merchants while extending uncertainty for the businesses responsible for introducing the charges.

An unnamed founder said the steering committee was expected to meet again in the first week of November. That is an industry expectation, not a meeting date confirmed in NPCI's statement. Until a new notification appears, businesses cannot treat any particular day after Diwali as the start date.

Retail Opposition and the Court Challenge

The proposal has drawn opposition from the All India Mobile Retailers Association (AIMRA), the All India Consumer Products Distributors Federation (AICPDF), Zerodha founder Nithin Kamath and Leader of the Opposition Rahul Gandhi.

AIMRA sought a fixed, nominal digital payment charge instead of the proposed percentage rate. AICPDF estimated that MDR could add Rs 7,000 crore to Rs 9,000 crore in annual costs across the fast moving consumer goods distribution and retail sector. That is the federation's estimate, not an official forecast of collections under the framework.

The two associations had called for a No UPI Day protest on October 2. They withdrew it after meeting Finance Minister Nirmala Sitharaman on September 30. Sitharaman separately said NPCI and the steering committee would decide whether implementation should be delayed.

The Supreme Court proceedings concern a writ petition filed by advocate Anjan Datta, who raised transparency and constitutional concerns and sought to stop the rollout. The court declined to grant a stay, but directed NPCI, the Reserve Bank of India (RBI) and the Government of India to explain the legal basis for MDR.

Respondents were given four weeks to file replies. The next hearing is scheduled for November 2, six days before Diwali. Refusing an interim stay does not amount to a final ruling on the challenge, and the later postponement was announced by the steering committee rather than ordered by the court.

Why Payment Providers Want a Revenue Model

The government FAQ says MDR would be distributed within the UPI ecosystem to support infrastructure, cybersecurity, innovation and customer service. It would not be collected as a government or NPCI tax.

The document cites an industry estimate of roughly Rs 20,000 crore a year to maintain UPI operations, including servers, communications capacity, fraud prevention and bank technical support. It describes government incentives as funding intended to support early adoption, rather than a permanent way to meet those expenses.

NPCI Managing Director and CEO Dilip Asbe has defended a commercial model to fund growing infrastructure and security needs. Discussing the resources available to attackers and the need for continuing investment in artificial intelligence, he said:

The ability and the tools with the hackers are really very powerful compared to what we could actually use inside,

The policy case is that predictable revenue can support reliable payment services at enormous scale. The merchant objection is that even a relatively small processing charge becomes a recurring expense, especially where business margins are narrow.

The FAQ compares the proposed 0.4% UPI rate with typical credit card MDR of 1.5% to 2.5% and debit card MDR capped at up to 0.90%. That comparison explains why the government describes UPI as relatively inexpensive. It does not change the fact that affected merchants would be moving from zero MDR to a new charge.

The government also proposes a dedicated fund to support payment acceptance among small merchants, particularly in smaller centres, the northeastern states, Jammu and Kashmir, and Ladakh. Assistance would go through banks and payment aggregators for merchant onboarding and transaction incentives. The September FAQ says details would be finalised with RBI within three months, pointing to a separate planning window around mid December.

UPI Growth and Market Reaction

UPI processed 24.07 billion transactions worth Rs 29.37 lakh crore in September, compared with 24.51 billion transactions worth Rs 29.82 lakh crore in August. Monthly volume fell 1.8% and value fell 1.5%, while annual growth remained strong at 23% in volume and 18% in value.

Daily activity tells a different story because September has fewer days than August. Average daily transactions rose from 791 million to 802 million, while average daily value increased from Rs 96,205 crore to Rs 97,913 crore. The monthly decline therefore did not represent a decline in the reported daily pace of payments.

The government FAQ gives August volume as 2,451 crore transactions, equivalent to 24.51 billion, but puts value at Rs 29.9 lakh crore rather than the Rs 29.82 lakh crore reported in the monthly comparison. The accounts agree on volume but give different value figures.

Shares of Paytm, Pine Labs and MobiKwik fell during October 13 trading as the postponement became known, with declines reported at up to 7%. They later recovered after NPCI confirmed a delay rather than cancellation. Paytm rebounded as much as 6% from its low, while Pine Labs and MobiKwik moved into positive territory. Those movements do not establish their closing returns.

Raman Khanduja, cofounder and CEO of Mintoak, said MDR could encourage banks to invest in merchant payment acceptance and develop broader business relationships. Explaining his view, he said:

The real opportunity is not the MDR revenue in isolation,

Khanduja identified working capital finance, credit, collections and reconciliation as services banks could develop through merchant relationships and transaction data. These are potential business opportunities, not benefits guaranteed by the rollout.

The Dates and Decisions Still to Watch

The sequence matters because the original fee announcement, merchant protests, court proceedings and postponement address different parts of the dispute.

• September 15, 2026: The MDR framework and government FAQ set out rates and an October 15 implementation date.
• September 30: Retail associations met Finance Minister Nirmala Sitharaman before withdrawing their planned protest.
• October 2: The proposed No UPI Day protest did not proceed after its withdrawal.
• October 13: The UPI and Services Steering Committee postponed implementation until immediately after Diwali.
• October 15: The original rollout date no longer applies.
• November 2: The Supreme Court challenge is scheduled for its next hearing.
• November 8: Diwali falls, with implementation intended afterward on a separately notified date.

The largest unresolved issue is the exact start date. NPCI has also not said whether any rates or exemptions will be revised, whether the proposed Rs 40 lakh turnover exemption will be adopted, or how operational arrangements will be updated before launch.

The September FAQ assigns the steering committee responsibility for operational parameters, fee distribution models and category caps. A new notification will therefore be needed to turn the broad promise of implementation after Diwali into a schedule merchants and payment providers can act on.

Key Points

• NPCI has deferred the October 15 UPI MDR rollout until immediately after Diwali, without announcing an exact date.
• The proposed standard merchant rate is 0.4% on eligible payments above Rs 2,000, capped at Rs 300.
• Selected sectors would pay Rs 5 per eligible transaction; capital market payments would carry a 0.02% rate capped at Rs 300.
• Consumers, personal transfers, merchant payments up to Rs 2,000 and eligible P2PM vendors remain protected from the proposed charges.
• Merchants cannot pass MDR directly to customers, and UPI apps cannot impose payment platform fees.
• The Supreme Court challenge is scheduled for November 2, before Diwali on November 8.
• Changes to rates, exemptions and implementation arrangements have not been confirmed.