On Tuesday, October 13, just two days before the new UPI charges were due to begin, NPCI changed course. Its UPI and Services Steering Committee decided that, keeping the festive season in mind, the Merchant Discount Rate on select person-to-merchant UPI transactions will now be implemented immediately after Diwali, on a date to be notified separately.

If you have been following this story, it has moved fast. Here is the full timeline, what the deferral actually means, and what to watch next.

How We Got Here

UPI launched in 2016 and, from January 1, 2020, carried no merchant fee at all, after the government announced that UPI and RuPay payments would have zero MDR. That was great for adoption, but the cost of running the system did not disappear. It simply had to be absorbed by banks, payment apps and NPCI, which is the background to this entire debate. We flagged many of the open questions in our piece on UPI MDR and the six questions that remained unanswered before charges start.

The Full Timeline

When	What Happened	Why It Mattered
January 2020	MDR on UPI and RuPay removed	Started the zero-fee era
Early September 2026	Government clarifies no charges on UPI payments up to Rs. 2,000	Set a floor, left larger payments open
September 15	NPCI announces new MDR framework to start October 15	Made the charge official
September 22	NPCI clarifies GST on MDR will not burden small merchants	Responded to merchant worries
Late September	Traders call off a planned "No UPI Day" for October 2 after meeting the Finance Minister	Showed how strong the pushback was
October 13	NPCI defers rollout to immediately after Diwali	Pushed the start date back, structure unchanged

What Was Actually Set to Change

The framework is the same one we broke down in our piece on the 0.4 percent MDR on transactions above Rs. 2,000. Merchant payments above Rs. 2,000 would attract a 0.4 percent charge, capped at Rs. 300 for payments of Rs. 75,000 or more, with lower rates for specific categories such as capital market payments. Payments up to Rs. 2,000 and person-to-person transfers stay free.

The 22 September clarification added two useful details. GST applies to the MDR amount, not to the whole UPI payment, and merchants who receive up to Rs. 1 lakh a month through UPI are not liable to pay MDR at all. NPCI said more than 96 percent of UPI merchant payments would remain unaffected.

Why the Pushback Kept Building

Two LocalCircles surveys show why the mood turned sour. In the merchant survey, only 17 percent of merchants were willing to bear an MDR of 0.3 percent or higher, while 41 percent said they would not bear any at all. We covered the full data in our piece on why only 17 percent of merchants will absorb the charge. A separate consumer survey found that 53 percent of UPI users would switch away from UPI for higher-value payments if the cost were passed on to them.

The industry itself was also split on how to respond, something we explored in our piece on how Paytm, Pine Labs and Axis Bank were responding to the UPI MDR. On top of this, traders' associations had called a "No UPI Day" for October 2, which was withdrawn only after a meeting with the Finance Minister.

Why NPCI Blinked

The stated reason is the festive season. Diwali is the biggest shopping period of the year, and a new payment charge arriving just before it would have landed at the worst possible moment for merchants and customers. We have been tracking that demand in our coverage of EV stocks in the Diwali season and in our consumer sector Q2 roundup, which shows how much depends on festive spending. Reports also said there had been discussions about pushing the start date all the way to January 1, so a post-Diwali date is a shorter delay than some had expected.

What Has Not Changed

This is a deferment, not a cancellation. Reports on the announcement said there is no change in the MDR structure, and NPCI has said implementation will follow right after Diwali. Consumers are still not meant to pay the MDR, which is a merchant-side charge, and banks and payment players have been advised not to pass it on to customers. Routine UPI payments carry on as before in the meantime.

What Comes Next

NPCI has not given a date. Diwali falls in early November this year, so the notification could come soon after the festival, but nothing is confirmed. Here is what is worth watching.

First, the notified date itself, and whether the thresholds stay exactly as announced. Second, how merchants behave once it starts, since the surveys suggest many are reluctant to absorb the cost. Third, how payment companies handle the economics. A new revenue stream could help firms that have run on thin margins, which is the kind of shift we examined in our piece on Meta and Cred's 4 billion dollar bet on UPI-linked fintech, though merchant resistance could limit how much of it they actually keep.

If you mainly use UPI to fund your trading account or invest in mutual funds, your position has not changed. Capital market payments carry a much lower rate of 0.02 percent, capped at Rs. 300, and it is paid by the merchant side rather than by you.

This article is for informational purposes only and should not be construed as investment, tax or financial advice. The post-Diwali start date has not been announced; please verify the latest NPCI notifications before making business or compliance decisions.

Frequently Asked Questions (FAQ)

1. Has NPCI cancelled the UPI MDR?

No. NPCI has only deferred the rollout. The MDR on select merchant transactions will start immediately after Diwali, on a date to be notified separately.

2. When did the UPI MDR deferral happen?

NPCI announced the deferral on October 13, 2026, just two days before the charges were due to begin on October 15.

3. Why was the UPI MDR rollout postponed?

NPCI's UPI and Services Steering Committee decided to defer it keeping the festive season in mind, so everyday payments stay unaffected during Diwali shopping.

4. Has the MDR structure changed with the deferral?

No, reports said there is no change in the structure. The charge applies to select merchant payments above Rs. 2,000, while payments up to Rs. 2,000 remain free.

5. Are small merchants affected by the new MDR?

Merchants receiving up to Rs. 1 lakh a month through UPI are not liable to pay MDR, and NPCI has said over 96% of UPI merchant payments remain unaffected.