UPI Charges in India: Payments Up to ₹2,000 Remain Free as Government Opens Door to Fees on Larger Transactions
The Indian government has formally clarified the next phase of its UPI charging framework, protecting small-value digital payments while creating a legal route for charges on certain higher-value merchant transactions. The Finance Ministry’s September 14 notification specifically prohibits banks and payment-system providers from imposing direct or indirect charges on UPI transactions of up to ₹2,000.
The notification also provides a complete charge exemption for payments made through RuPay-powered debit cards. Importantly, the prohibition applies to charges on both the person making and the person receiving the specified payment.
This does not, however, mean that every UPI transaction above ₹2,000 will immediately attract a fee. The government has not yet announced a final MDR rate or confirmed that a charge will automatically be applied to every high-value UPI payment.
Instead, the latest move establishes the legal framework under which Merchant Discount Rate, or MDR, could be introduced for selected higher-value merchant transactions. NPCI is now expected to discuss the framework and rates for transactions above the ₹2,000 threshold.
MDR is a fee associated with accepting digital payments and is generally paid by the merchant rather than directly by the customer. Under the proposed framework, the crucial distinction is therefore between a consumer being charged for making a UPI payment and a merchant potentially bearing a payment-processing cost.
The government had already said in August that consumers would continue to make UPI payments without transaction charges and that person-to-person transactions would remain free. It also indicated that any future MDR would be limited to selected merchant transactions above a threshold and would be nominal compared with traditional debit- and credit-card MDR rates.
The scale of the issue is significant. During 2025-26, India recorded more than 24,000 crore UPI transactions worth about ₹314 lakh crore. Interestingly, transactions above ₹2,000 represented only about 4% of person-to-merchant transactions, but those transactions accounted for roughly two-thirds of the total value.
That makes the ₹2,000 threshold strategically important. The government can preserve free UPI for the overwhelming majority of everyday low-value payments while potentially creating a revenue stream from the relatively small number of high-value merchant transactions.
The change follows amendments to the Payment and Settlement Systems Act, 2007, passed as part of the Taxation and Other Laws (Amendment) Bill, 2026. Finance Minister Nirmala Sitharaman had stressed during the parliamentary debate that the amendment itself did not impose a UPI transaction tax or charge and that no final MDR framework had then been established.
The policy debate is ultimately about who should pay for UPI’s rapidly expanding infrastructure. The government argues that the system requires continuing investment in cybersecurity, fraud prevention, technology and resilience as transaction volumes grow.
For ordinary users, the immediate message is therefore relatively clear: UPI payments up to ₹2,000 remain protected from charges, and consumers are not currently being told to pay a new UPI fee. The bigger question is what happens to high-value merchant payments once NPCI finalises the MDR framework.
The development could also reshape the economics of India’s fintech industry. UPI MDR has effectively been zero for ordinary UPI merchant payments since 2020, meaning banks and payment companies have largely depended on other revenue sources and government incentives to support the ecosystem. A selective MDR model could give payment providers a new source of revenue while potentially changing competition among UPI apps.
For merchants and consumers, the next major development will therefore be the actual MDR structure: which transactions above ₹2,000 will be covered, what rate will apply, which merchants will be exempt and whether payment providers absorb the cost or pass some of it through the merchant ecosystem. NPCI’s discussions on the framework are now the key development to watch.
