The National Payments Corporation of India (NPCI) announced on Tuesday, October 13, 2026, that the implementation of a Merchant Discount Rate (MDR) on select person‑to‑merchant (P2M) UPI transactions will be deferred until a date “immediately after Diwali.” The original rollout date of October 15 has been cancelled, and no specific new date has been disclosed.
Background on the proposed MDR
The pending MDR was set at 0.40% on UPI transactions that exceed ₹2,000 when conducted at medium‑ and large‑scale merchant establishments. The policy differentiated between ordinary commercial transactions and those linked to the capital market or strategic sectors, which would attract distinct discount rates. The intent behind the levy, as outlined by NPCI, was to create a revenue stream for the payment infrastructure while preserving the overall affordability of digital transactions.
Government and trader response
According to sources within the Prime Minister’s Office, the decision to delay the MDR was taken after strong appeals from the trading community. Praveen Khandelwal, founder and secretary‑general of the Confederation of All India Traders (CAIT) and a Bharatiya Janata Party (BJP) Lok Sabha member, welcomed the postponement. He said the move would protect traders’ interests and sustain the momentum of digital payments during the festive period.
Khandelwal thanked Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman for “understanding the concerns of traders and taking a positive decision.” His remarks were made on the same day the NPCI issued its statement, emphasizing that the timing was crucial for merchants who rely on heightened sales during Diwali and the accompanying wedding season.
CAIT’s position was articulated after a meeting on September 30, when a delegation of roughly 20 trade leaders, led by Khandelwal, met Finance Minister Sitharaman. The group highlighted the potential impact of a 0.40% MDR on transactions above ₹2,000, warning that additional costs could strain merchants operating on thin margins. While CAIT affirmed its support for digital payments, it stressed that the system must remain affordable and sustainable, especially for small businesses.
The traders’ body described the postponement as “timely and pragmatic,” noting that millions of traders and micro‑, small‑ and medium‑enterprises (MSMEs) depend on higher transaction volumes during the festive and wedding seasons. CAIT warned that imposing extra transaction costs could discourage broader acceptance of digital payments and place an avoidable burden on merchants.
Legal and regulatory context
The Supreme Court of India has recently intervened in the MDR debate. It directed NPCI, the Union government, and the Reserve Bank of India (RBI) to file affidavits by late October explaining the rationale for imposing the discount rate on specified UPI transactions. The court’s order underscores the legal scrutiny surrounding any new levy on digital payments, a sector that has grown rapidly in recent years.
In a separate development reported by The Hindu, liquefied petroleum gas (LPG) distributors approached the Petroleum and Natural Gas Ministry seeking a complete exemption from the MDR or any other payment‑infrastructure‑related charges. The distributors argued that they have no autonomy to set cylinder prices, receive fixed commissions on sales, and that an MDR would negatively affect their earnings. They also warned that the levy could prompt consumers to revert to cash payments or adopt staggered payment methods to stay below the ₹2,000 threshold, creating logistical inconvenience.
These sector‑specific concerns highlight the broader debate over whether a uniform MDR can coexist with the diverse pricing structures and profit models of different industries.
Potential impact on the payments ecosystem
Deferring the MDR to a post‑Diwali date may have several short‑term implications. First, merchants are likely to avoid any sudden increase in transaction costs during a period traditionally associated with heightened consumer spending. Second, the delay gives the government and regulatory bodies additional time to respond to the Supreme Court’s directive and to possibly refine the MDR framework based on stakeholder feedback.
Industry analysts have noted that the UPI platform, launched in 2016, has become a cornerstone of India’s digital economy, handling billions of transactions annually. Maintaining low transaction costs has been central to its rapid adoption, especially among small merchants and informal traders. Any perceived increase in fees could slow the transition from cash to digital modes, a shift that policymakers have been actively encouraging.
While the exact date for MDR implementation remains undecided, NPCI’s statement indicated that a separate notification will be issued once the festive season concludes. The phrase “immediately after Diwali” suggests that the authorities intend to act promptly once the holiday period ends, balancing fiscal considerations with the need to preserve the festive‑season sales surge.
For now, merchants, payment service providers, and consumers will continue to operate under the existing zero‑MDR regime for UPI transactions, at least until the post‑Diwali notification is released.
As the deadline approaches, further statements from NPCI, the Ministry of Finance, and the RBI are expected, particularly in response to the Supreme Court’s pending affidavits. Stakeholders will be watching closely to see whether the MDR will be introduced as originally planned, modified to address sector‑specific concerns, or possibly abandoned altogether.
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