UPI Merchant Fee Deferred Till After Diwali — What Every Shop Owner and Online Seller Must Know

If you accept UPI payments at your shop, showroom or online store, you have probably seen the forwards and headlines about a new "merchant fee" on UPI. Some sellers started worrying that every UPI payment would quietly start costing them money from the middle of October. The good news is that the rollout has been put on hold. The National Payments Corporation of India (NPCI) has deferred the proposed UPI MDR charges, giving shop owners and online sellers more time to understand what is actually changing.

This guide explains, in plain language, what fee was proposed, who would have paid it, what remains completely free, and what your business should do now so that you are ready when the new date is announced.

The Short Answer

The proposed merchant fee — technically called MDR, or Merchant Discount Rate — was a charge of 0.4% on person-to-merchant (P2M) UPI payments above ₹2,000. It was due to start on 15 October 2026, but NPCI deferred it to a date "immediately post Diwali", which will be notified separately. Three things are worth remembering: the fee is payable by merchants, not by customers; person-to-person UPI transfers remain free; and even when the fee does start, it is capped at ₹300 per transaction, so the vast majority of everyday merchant payments remain free.

What Exactly Was Proposed?

Every time a customer pays a business digitally, a chain of banks, payment gateways and apps works behind the scenes to move the money safely. On card payments, merchants have long paid a small percentage of each transaction — the MDR — to cover the cost of that chain. UPI merchant payments, however, have largely been free for businesses so far.

Under the proposed framework, that was set to change in a limited way. Person-to-merchant UPI payments above ₹2,000 would attract MDR of 0.4%. Payments of ₹2,000 or less were kept outside the charge, and person-to-person transfers were not part of the plan at all. The start date was fixed for 15 October 2026. On 13 October 2026, however, NPCI announced that the rollout would be deferred until after Diwali, amid pushback from the retail industry, and that the exact new date would be notified separately. Until that notification comes, nothing changes at your billing counter or on your checkout page.

Who Pays the Fee — and Who Does Not

Customers never pay it

MDR is a merchant-side charge. A customer paying ₹5,000 for a phone or a festival purchase pays exactly ₹5,000 — the fee, when it eventually applies, comes out of the merchant's side of the transaction, just as card MDR does today. You should not add any "UPI charge" to a customer's bill, and customers should not accept one either.

Small everyday payments stay free

The charge was designed to apply only above ₹2,000. The tea stall, the kirana store, the salon and most daily-need purchases fall below or around that level, which is why the vast majority of everyday merchant payments remain free even under the proposal. Person-to-person payments — sending money to family, friends or your staff — are completely outside the framework.

There is a ₹300 cap per transaction

Even for large purchases, the proposed fee tops out at ₹300 per transaction. To put the rate in perspective: on a ₹10,000 sale, 0.4% works out to ₹40. On a very high-value payment — say, a large appliance or jewellery purchase — the ₹300 ceiling limits the maximum the merchant would pay on that single transaction. For most small businesses, the typical impact, when the fee eventually begins, will be a few rupees on larger bills rather than a major new cost.

Different Treatment for Essential Services and Capital Markets

The framework does not treat every sector identically. Essential services — railways, telecom, fuel and insurance — would attract a flat ₹5 per transaction on payments above ₹2,000 instead of the percentage charge. Capital-market transactions, such as those linked to investments, would carry a lower rate of 0.02%. If your business falls in one of these categories, the flat or lower rates are the ones to plan around.

Where Would the Collected Fee Go?

According to the framework, the MDR collected is to be shared across the chain that makes UPI work: 40% to customers' banks, 30% to payment gateways, 20% to the UPI app used for the payment, and 10% to the sponsoring bank. In simple terms, the idea behind the proposal is to give the banks, gateways and apps that maintain the UPI infrastructure a small revenue share from larger merchant transactions, while keeping small payments and personal transfers free. Whether one agrees with the idea or not, that is the logic merchants should understand before the new date is announced.

What Shop Owners Should Do Now

Keep accepting UPI exactly as before. There is no fee in force today, and turning customers towards cash to avoid a deferred charge would only hurt your sales and your records. Do not add any surcharge or "UPI fee" line to bills — the charge, when it comes, is not the customer's to pay.

Watch for the official notification. NPCI said the fee will begin on a date immediately after Diwali, to be notified separately. Business associations, your bank and your payment provider will carry the announcement. Be careful with rumours and forwarded messages that claim a different rate or date — rely on the official notification.

Do a simple margin check if your bills are usually large. If you sell electronics, appliances, furniture or jewellery, where many transactions cross ₹2,000, look at what 0.4% (capped at ₹300 per transaction) would mean across a month of sales. For most shops it will be a small, absorbable cost; knowing the number in advance means there is no surprise later.

What Online Sellers Should Do Now

If you sell through your own website or an online store, your payment gateway will handle the technical side of any UPI MDR charges — the deduction, if and when it starts, happens within your settlement. Your job is simpler: check your gateway's pricing updates once the new date is notified, and make sure the fee, if applicable, reflects correctly in your settlements and accounting.

This is also a good moment to look at the overall cost of selling online rather than just one fee. Payment charges are only one part of the picture; hosting, design and maintenance matter too. If you are still planning your store, our complete breakdown of website development cost in India will help you budget properly before you spend anything.

Frequently Asked Questions

Will my customers be charged extra for paying by UPI?

No. The proposed MDR is payable by merchants, not consumers. A customer's payment amount does not change, and person-to-person UPI transfers remain free.

When will the UPI merchant fee actually start?

It was scheduled for 15 October 2026, but NPCI deferred it on 13 October 2026 to a date "immediately post Diwali", which is to be notified separately. As of now, no fee is in force.

Does the 0.4% fee apply to every UPI payment my shop receives?

No. Under the proposal it applies only to person-to-merchant payments above ₹2,000, and it is capped at ₹300 per transaction. Smaller merchant payments and all person-to-person payments remain free.

I run a fuel station. Is the rate different for me?

Yes. Essential services — railways, telecom, fuel and insurance — would pay a flat ₹5 per transaction above ₹2,000 instead of the 0.4% rate, while capital-market transactions would pay a lower 0.02%.

Sources

• The New Indian Express — "NPCI defers 0.4% MDR on UPI transactions above Rs 2,000 until after Diwali" (updated 13 October 2026) — newindianexpress.com
• TechCrunch — "India delays digital payments fee rollout amid retailer pushback" (13 October 2026) — techcrunch.com

Running a shop or selling online and want the digital side of your business handled properly — payments, website and customer communication included? Ready Multi Service helps small businesses across India set up and manage their online presence. Explore more practical guides on our blog, and talk to us when you are ready to grow.