UPI Charges in India: Payments Up to ₹2,000 Protected as Government Opens Door to Fees on High-Value Merchant Transactions
India’s Unified Payments Interface (UPI) is entering a significant new phase after the government formally clarified which digital payments must remain free. Under a notification issued by the Finance Ministry on September 14, banks and payment system providers cannot impose direct or indirect charges on UPI transactions of up to ₹2,000. RuPay debit-card payments are also protected from such charges.
The clarification is important because recent changes to the Payment and Settlement Systems Act had created uncertainty over whether UPI charges could eventually be introduced more broadly. The latest notification establishes a clear legal no-charge threshold rather than imposing a blanket prohibition on all UPI transactions.
For ordinary users, the immediate message is relatively straightforward: UPI payments of ₹2,000 or less remain free. Person-to-person, or P2P, UPI transfers will also continue to remain free, according to the government’s earlier clarification.
The bigger change concerns payments above ₹2,000 made to merchants. The government has not yet announced a final MDR rate for these transactions, but the new framework creates the legal space for such charges. The National Payments Corporation of India (NPCI) was expected to discuss the issue on September 15, with reports indicating that a rate around 0.4% is being considered for certain high-value merchant transactions.
MDR, or Merchant Discount Rate, is a processing fee associated with digital payments. If introduced for qualifying UPI transactions, it would generally be a charge within the payment ecosystem rather than a direct fee imposed on consumers every time they scan a QR code. Exactly how the cost is divided between banks, payment apps and other payment intermediaries is still being discussed.
The scale of the issue is substantial. In 2025-26, only around 4% of person-to-merchant UPI transactions were above ₹2,000, but those transactions represented roughly two-thirds of the total value of P2M UPI payments. More than 24,000 crore UPI transactions worth about ₹314 lakh crore were processed during the financial year.
This means the proposed framework is potentially much more important for large-value digital commerce than for everyday small purchases. A ₹100 grocery payment or ₹500 restaurant bill would remain within the protected threshold, while a much larger merchant payment could eventually fall under an MDR regime depending on the final rules.
The government has defended the broader legislative change as an attempt to make the UPI ecosystem financially sustainable. In August, the Finance Ministry said UPI infrastructure faces growing requirements for cybersecurity, fraud prevention, technological upgrades and resilience, and argued that a sustainable revenue model may be necessary as the system expands.
There is also a significant financial argument behind the debate. The payments industry has maintained that operating the rapidly expanding UPI infrastructure without MDR creates a growing financial burden. The Standing Committee on Finance was told that the payments industry was incurring an estimated ₹20,700 crore annually on person-to-merchant transactions.
At present, the government is therefore trying to balance two competing objectives: keeping UPI inexpensive enough to preserve mass adoption while creating a possible revenue stream from larger commercial transactions. The official position remains that UPI should continue to be free for citizens and that any future MDR would be limited to selected merchant transactions.
The next major decision will come from the UPI ecosystem’s regulatory and industry framework, particularly the NPCI-led process for determining whether MDR should actually be introduced above the ₹2,000 threshold and, if so, at what rate and for which merchants.
For consumers, the key takeaway is that there is no blanket UPI charge being imposed today. The September 14 notification specifically guarantees zero charges on UPI transactions up to ₹2,000 and on RuPay debit-card payments. The unresolved question is how, and to what extent, charges will apply to higher-value merchant payments.
If the proposed high-value MDR system goes ahead, it could mark the first major structural change to UPI’s long-standing zero-MDR model since the government eliminated MDR on UPI and RuPay debit-card transactions in 2020. The decision could reshape the economics of India’s enormous digital-payments market while leaving the everyday small-ticket UPI experience largely unchanged.
