e-commerce
UPI payment charge takes a Diwali break, new rollout date awaited
The 40-basis-point levy on select merchant payments above Rs 2,000 was due to begin on 15 October
NEW DELHI: India’s planned UPI payment charge has hit the festive-season pause button. The introduction of the merchant discount rate (MDR) on select merchant transactions has been deferred until after Diwali, giving merchants and payment companies more time to prepare for a significant shift in the country’s digital payments framework.
The UPI and Services Steering Committee decided on Tuesday to postpone the levy on eligible person-to-merchant (P2M) transactions, citing the festive season. The charge was originally scheduled to take effect on 15 October, while the revised implementation date will be announced separately.
Under the proposed framework, a merchant discount rate of 40 basis points will apply to eligible UPI payments made from bank accounts to merchants for transactions exceeding Rs 2,000. One basis point is one-hundredth of a percentage point, making the proposed rate equivalent to 0.4 per cent.
Smaller transactions and payments involving exempt merchant categories will remain outside the levy. More than 95 per cent of UPI merchant-payment transactions by volume are expected to remain free, limiting the direct impact largely to higher-value payments.
However, the impact could be more pronounced when measured by transaction value. Industry estimates suggest that payments above Rs 2,000 account for a sizeable share of the total value of merchant transactions, meaning the proportion of value attracting the charge could be considerably higher than the share of transactions affected by volume.
The proposed levy marks a departure from the zero-MDR framework under which merchants have not been charged for accepting bank account-based UPI payments.
Under the existing arrangement, the government has supported banks and payment companies through an incentive scheme covering low-value UPI and RuPay debit-card transactions. The proposed MDR framework would introduce a charge on eligible higher-value merchant payments, changing the economics of accepting certain digital transactions.
The postponement does not amount to a withdrawal of the proposed levy. Instead, it pushes implementation beyond Diwali, with merchants and payment companies awaiting clarity on the final date and preparing for the operational implications.
For India’s digital payments ecosystem, the challenge will be to introduce a new pricing mechanism without disrupting the convenience and widespread acceptance that have helped UPI become a central part of everyday commerce. The festive pause offers breathing space, but the larger question of how merchant payments will be funded remains firmly on the table.
