India is reportedly considering postponing the implementation of a 0.4% merchant discount rate (MDR) on Unified Payments Interface (UPI) transactions over ₹2,000, which was set to begin on October 15, 2026. This consideration follows widespread protests from merchants across the country.
The proposed MDR fee, which merchants would pay, was intended to apply to certain merchant payments exceeding ₹2,000. For transactions of ₹75,000 or more, the MDR fee would be capped at ₹300. However, person-to-person (P2P) transactions and merchant payments up to ₹2,000 would remain free. Essential services like railways, telecommunications, insurance, fuel, and agricultural materials would incur a ₹5 SDR on UPI payments over ₹2,000, while capital market transactions would have a 0.02% MDR, capped at ₹300.
The decision to introduce these fees, announced in September 2026, marked an end to the previously free UPI system for certain large transactions. This move has been met with significant opposition. On September 23, 2026, merchants in Madhya Pradesh observed a ‘No UPI Day’ to protest the proposed charges. More recently, on October 8, 2026, traders in New Delhi’s Sadar Bazaar also protested against the upcoming fees.
The Reserve Bank of India (RBI), India’s central bank, had stated on October 7, 2026, that the MDR fees were not expected to significantly impact UPI transaction volumes. The National Payments Corporation of India (NPCI), which operates the UPI system in India, has cited the need to ensure the long-term sustainability of the UPI ecosystem, including investments in infrastructure, cybersecurity, fraud prevention, and customer service, as the reason for implementing the MDR fees.
Despite the protests, the 0.4% MDR on certain UPI merchant payments over ₹2,000 is still officially scheduled to take effect from October 15, 2026. The Indian government has instructed banks and payment aggregators to ensure that merchants do not pass on the MDR fees to consumers and will monitor this daily from October 15, 2026. The Madhya Pradesh Petroleum Dealers Association has announced that they will not accept UPI payments over ₹2,000 starting October 16.
Concerns remain about whether merchants will indeed absorb the MDR fees or pass them on to consumers. The ultimate impact of these fees on UPI usage is uncertain, despite the RBI’s optimistic outlook. Furthermore, it is unclear when a fully reciprocal cross-border UPI payment system between Nepal and India will be launched, allowing Nepali users to make payments in India. The legal basis of the MDR is also under scrutiny by the Supreme Court, leading to uncertainty among banks and merchants.
