New Delhi: The Merchant Discount Rate (MDR) on selected Unified Payments Interface (UPI) transactions involving merchants will be introduced after Diwali, with the revised implementation date to be announced separately.
The decision was taken on October 13, following a review of the proposed changes and the need to avoid disruptions during the festive shopping season. The charges were initially scheduled to come into effect on October 15.
Under the proposed structure, a Merchant Discount Rate of 0.4 per cent would apply to eligible person to merchant (P2M) UPI transactions exceeding Rs 2,000. The charges would be paid by merchants rather than customers, with a maximum cap of Rs 300 for transactions worth Rs 75,000 or more. Payments between individuals and most routine merchant transactions would continue to remain free.
The proposed fee is intended to support the financial sustainability of the UPI ecosystem, which requires substantial investment in technology infrastructure, cybersecurity, fraud prevention, system reliability and customer support. Estimates cited by the government suggest that operating UPI costs the industry approximately Rs 20,000 crore annually, raising concerns over the long term sustainability of relying primarily on government incentives.
Since January 2020, MDR on RuPay debit card payments and BHIM UPI transactions had remained zero to encourage wider adoption of digital payments. The government subsequently introduced incentive programmes to support the payment ecosystem, including a Rs 1,500 crore scheme for the financial year 2024 to 2025. The programme encouraged low value BHIM UPI transactions between customers and merchants, offering government funded incentives for eligible payments of up to Rs 2,000 made to small merchants.
The original October 15 deadline coincided with the busy festive shopping period, when digital payment volumes typically increase. The postponement is expected to provide payment service providers with additional time to update their systems and prepare merchants for the proposed changes.
The new implementation date is yet to be announced, while the existing rules on free UPI transactions remain applicable until the revised rollout takes effect.
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