The proposed Merchant Discount Rate (MDR) framework for select Unified Payments Interface (UPI) transactions has been postponed until after Diwali, with the revised implementation date yet to be announced. The National Payments Corporation of India (NPCI) had initially scheduled the rollout for October 15, 2026. Under the proposed framework, a 0.4% MDR would apply to eligible Person-to-Merchant (P2M) UPI transactions above Rs 2,000, subject to specified exemptions and caps. The proposed changes have raised questions among merchants about GST on MDR, small-merchant exemptions, customer surcharges and the potential impact on retail margins. The Ministry of Finance has clarified that person-to-person (P2P) payments will remain free, as will merchant transactions up to Rs 2,000 and payments covered by the zero-MDR framework for small merchants. The government estimates that approximately 96% of merchant transactions will remain unaffected. 

Praveen Khandelwal, Founder and Secretary-General of the Confederation of All India Traders (CAIT), welcomed the decision to defer the proposed MDR rollout until after the festive season. He emphasized the importance of protecting traders' interests and avoiding additional cost pressures during a critical business period.

Key Takeaways

1. UPI MDR Rollout Postponed: NPCI has postponed the proposed MDR implementation until after Diwali 2026. The revised implementation date remains unannounced as of October 23, 2026.

2. Proposed Standard MDR Rate: Eligible Person-to-Merchant (P2M) UPI payments above Rs 2,000 are proposed to attract a 0.4% MDR, subject to applicable exemptions and caps.

3. Most Merchant Transactions May Remain Unaffected: The government estimates that approximately 96% of merchant transactions will remain unaffected under the announced framework.

4. Small-Merchant Exemption: Eligible merchants receiving up to Rs 1 lakh per month through UPI QR codes under the P2PM category will continue to qualify for zero MDR.

5. GST Applies to the MDR Fee: GST may apply to the payment-processing fee rather than the entire UPI transaction amount, subject to applicable tax rules.

6. Eligible Merchants May Claim ITC: GST-registered merchants may claim Input Tax Credit on GST paid on MDR, subject to eligibility conditions and documentation requirements.

7. Customers Should Not Bear MDR Charges: Under the announced framework, banks have been advised to prevent merchants from passing MDR charges to customers, while UPI apps are prohibited from imposing platform fees or hidden charges.

8. Essential Services Have Special Rates: Eligible transactions above Rs 2,000 in railways, telecommunications, insurance, fuel and agricultural inputs are proposed to attract a flat MDR of Rs 5 per transaction.

9. Capital-Market Transactions Have a Separate Rate: Eligible payments relating to mutual funds, securities, stockbrokers and dealers are proposed to attract a 0.02% MDR, capped at Rs 300 per transaction.

10. Merchants Should Prepare for Implementation: Businesses should verify P2PM eligibility, review transaction data, check GST and ITC eligibility, update accounting systems and monitor official NPCI announcements before making changes.

Explore UPI MDR rules for 2026, including proposed charges, GST on payment-processing fees, small-business exemptions, industry-specific rates and the latest implementation update. 

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