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The National Payments Corporation of India has deferred the introduction of a 0.4% merchant discount rate on selected person-to-merchant UPI payments, which was due to start on 15 October 2026, until after Diwali. The decision, announced in an NPCI statement on 13 October, was taken by the UPI and Services Steering Committee keeping in mind the festive season, according to The Week. The new date is to be notified separately, and one report says it is expected to fall after 8 November.
The fee applies to a limited group of payments. It is 0.4% of the amount on person-to-merchant transactions above Rs 2,000, and The Week gives an example in which a Rs 5,000 payment would carry a fee of Rs 20. Person-to-person transfers are excluded. According to a framework summary published by SCC Online on 16 September, the fee is capped at Rs 300 for transactions of Rs 75,000 and above.
Consumers are not meant to pay it. The same summary says that consumers can continue to use UPI free of cost and that merchants will not be permitted to pass the fee on to customers. The Week, however, notes that whether merchants could pass on the charge remained unclear in the material it reviewed, so the two sources differ on this point and the final rules will settle it.
A long list of exemptions is described in the framework summary. Payments up to Rs 2,000 are free of the fee, and the summary says that they make up more than 95% of the total volume, which matches the MediaNama finding that only 4% of person-to-merchant transactions exceed Rs 2,000. Small merchants receiving up to Rs 1 lakh a month pay no fee, credit-linked UPI payments are excluded, and essential services such as railways, telecom, insurance and fuel are to pay a flat Rs 5 a transaction.
The summary also lists lower rates for some uses: educational institutions get concessional rates, and capital market transactions are charged 0.02% capped at Rs 300. These details come from one secondary summary of the framework, and The Week says that merchant categories and the final operating rules are still to be announced, so they should be checked against the NPCI notification.
The fee is described as applying to large merchants. The reason it matters is that UPI has been free of any merchant discount rate since 2020, and banks and payment apps have argued that they bear costs. The framework sets up a fund to support merchant onboarding and infrastructure in underserved regions, and the summary says that details are due within three months. The sources reviewed do not say how the fee would be shared among banks and apps, only that the steering committee decides the distribution.
Retailers, restaurants, e-commerce sellers and small businesses are the groups affected, according to The Week, and the deferral spares them a charge during the festive shopping surge. UPI volumes reached a record 802 million transactions a day in September, which shows the scale of the shopping season that officials did not want to disrupt.
Is it a big charge? On a Rs 5,000 purchase it is Rs 20, and on the largest payments the cap holds it at Rs 300. For a business with thin margins and many mid-sized payments, 0.4% can still add up, though for most everyday payments below Rs 2,000 nothing changes.
The sources reviewed leave several questions open, including the exact new date, the merchant categories covered and how the revenue will be shared, and those details will determine how large the effect of the fee really is.
Featured image: A hand holding a smartphone (file photo; a stand-in image for digital payments). Photo by Jernej Furman from Slovenia, licensed under CC BY 2.0, via Wikimedia Commons.