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Government says no charges on UPI payments up to ₹2,000. What happens beyond that?
Government has said there will be no charges on UPI transactions up to ₹2,000, but the wider debate over Merchant Discount Rate is not closed.
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Centre on Monday notified a change to the Payment and Settlement Systems Act to say that no charges can be imposed on UPI transactions of up to ₹2,000, settling one part of a broader debate over fees on a system that is now used for transfers of small everyday sums to tens of thousands of rupees.
The Ministry of Finance said in the gazette notification that the prohibition, issued under Section 10A of the Act, covers two categories: payments made through RuPay debit cards, and UPI transactions up to the ₹2,000 threshold. No bank or system provider, the notification says, may impose any charge, directly or indirectly, on a person making or receiving payment through these modes.
Will UPI payments above ₹2,000 attract a fee?
No — at least not for the consumer. Speaking in the Rajya Sabha on August 11, when Parliament cleared the Taxation and Other Laws (Amendment) Bill, 2026, finance minister Nirmala Sitharaman said the amendment to Section 10A was "an enabling provision" that "does not impose any tax or transaction charge on UPI users".
She was categorical that no fee would apply to street hawkers, cab drivers, kirana stores or small merchants either. Any fee that does eventually come in, she said, would be paid by merchants, not by the person making the payment.
What the Bill will does is remove an existing provision that had barred banks and payment service providers from charging a Merchant Discount Rate (MDR) on UPI. That is what has kept the debate alive — nominal charges could yet apply on certain limited merchant transactions.
What is MDR?
MDR is a small fee that merchants pay to banks and payment companies each time a customer makes a digital payment. A customer pays a shopkeeper through a digital payment system, and the shopkeeper pays a small processing fee to the payment provider.
UPI has been exempt from MDR since 2020, a policy choice meant to push India away from cash and towards digital payments.
Why is MDR back under discussion?
UPI is the world's largest retail real-time payment system by transaction volume, according to a 2025 International Monetary Fund report. It processed 24.51 billion transactions worth ₹29.82 lakh crore in August. Running a network of that scale — technology, cybersecurity, fraud prevention, customer support — costs money.
Those costs are currently borne by banks, third-party payment apps and the National Payments Corporation of India (NPCI). The Union government has also been providing annual budgetary incentives to banks to offset the cost of the zero-MDR regime.
Payment companies have argued that being allowed to levy MDR would give them room to invest more in the system. The brokerage Jefferies estimated in August that merchant fees on larger UPI transactions could generate ₹5,000 crore to ₹10,000 crore a year for the industry.
Who takes the final call?
The Bill, now cleared by both Houses of Parliament, gives the government the power to permit charges. It does not, on its own, introduce them.
Sitharaman had told the Rajya Sabha that once the Bill was in force, the UPI & Services Steering Committee — headed by NPCI and comprising 22 members, including major banks and the two dominant UPI apps — would decide whether MDR should be introduced, and at what scope and structure.
That decision, she had said, has not yet been taken.
