The government notified changes in its payments legislation on Monday, specifying that banks cannot impose charges on payments via Unified Payments Interface transactions of up to 2,000 rupees ($20.93).
New India: The introduction of Merchant Discount Rate (MDR) on large-value UPI transactions is an important step towards strengthening the long-term sustainability of India’s digital payments ecosystem, the Reserve Bank said on Tuesday following a proposal to levy a 0.4 per cent fee on transactions exceeding Rs 2,000.
“It will help UPI in continuing to scale, innovate and serve consumers and businesses across the country,” the Reserve Bank of India (RBI) said in a post on X.
Ending nearly six years of fully free UPI payments, the government on Tuesday introduced a 0.4 per cent fee on transfers worth more than Rs 2,000 made to merchants through the platform from October 15, while explicitly ring-fencing everyday person-to-person transactions as well as small payments from any charge.
This, in turn, can enable wider UPI acceptance, deepen the customer base and support sustained growth in transaction volumes, it said.
Importantly, all UPI transactions — both Person-to-Person (P2P) and Person-to-Merchant (P2M) — shall remain free for users, it said, adding that P2M UPI transactions below Rs 2,000 will continue to remain free for merchants.
“RBI remains committed to ensuring that UPI continues to be safe, seamless, affordable, and accessible, while supporting the long-term sustainability and growth of India’s world-class digital payments ecosystem,” it said.
UPI is operated by the National Payments Corporation of India (NPCI), an initiative of RBI and the Indian Banks’ Association. It runs real-time payments between individuals nd enables customers to make payments directly to merchants while making purchases.
As far as overseas presence is concerned, UPI is now accepted in 11 countries, with Uzbekistan being the latest entry. The other countries where UPI is accepted are Singapore, the United Arab Emirates, France, Mauritius, Nepal, Bhutan, Qatar, Sri Lanka, Cambodia, and Greece.
UPI, launched on August 25, 2016, has transformed India’s digital payments landscape, with transaction value surging from Rs 0.07 lakh crore in FY17 to around Rs 314 lakh crore in FY26, a more than 4,000-fold increase over the decade.
The government notified changes in its payments legislation on Monday, specifying that banks cannot impose charges on payments via Unified Payments Interface transactions of up to 2,000 rupees ($20.93).
The notification altered an earlier provision that prevented banks from charging fees on digital payments via India’s popular UPI, paving the way for charges to be imposed on larger transfers.
UPI, operated by the National Payments Corporation of India, is the world’s largest retail fast-payment system by transaction volume, according to a 2025 IMF report.
The new rule keeps UPI payments of up to 2,000 rupees free of charges
It paves the way for banks and payment companies to charge on larger UPI payments.
Charges were required for market expansion and self-sustainability, it had said. It is necessary to increase competition by encouraging more companies to expand their operations, which requires a self-sustaining revenue model, it had said.
Reliance on subsidies alone is not viable for the next wave of growth, it said, adding that a balanced framework is required to ensure that UPI remains robust, inclusive, and future-ready.
BJP leader Amit Malviya said there is no government order stipulating that Rs 25 will be levied on a Rs 5,000 payment or Rs 50 on a Rs 10,000 payment.
“Most importantly, no charges are being levied on UPI users. Person-to-person UPI transactions remain free, regardless of the amount. The government has clarified that even if an MDR is introduced in the future, it will apply to specific merchant transactions, not to the consumer,” he added.
In reality, the government itself is providing incentives to the payment ecosystem to keep UPI free. Between FY22 and FY24, the government provided incentives amounting to Rs 1,389 crore, Rs 2,210 crore, and Rs 3,631 crore, respectively. Incentive support of Rs 2,196.21 crore was provided for 2025-26 and Rs 2,000 crore has been budgeted for FY27,” he said.
UPI is operated by the National Payments Corporation of India (NPCI), an initiative of the Reserve Bank of India (RBI) and the Indian Banks’ Association.
It runs real-time payments between individuals and enables customers to make payments directly to merchants while making purchases. As far as overseas presence is concerned, UPI is now accepted in 11 countries, with Uzbekistan being the latest entry.
The other countries where UPI is accepted are Singapore, the United Arab Emirates, France, Mauritius, Nepal, Bhutan, Qatar, Sri Lanka, Cambodia, and Greece.
Any fee, if introduced, would be paid by merchants rather than consumers, government officials have previously said.
Banks and payment service providers stand to benefit from a potential new revenue stream.
Jefferies estimated in August that merchant fees on larger UPI transactions could generate Rs50 billion to Rs100 billion annually for the payments industry.
UPI, launched a decade ago, processed 24.51 billion transactions worth Rs 29.82 trillion in August. Google Pay and Walmart’s PhonePe accounted for about three-fourths of monthly transaction volumes.
Payments made using debit cards on India’s homegrown RuPay network will remain free.
UPI, launched on August 25, 2016, has transformed India’s digital payments landscape, with transaction value surging from ₹0.07 lakh crore in FY17 to around ₹314 lakh crore in FY26, a more than 4,000-fold increase over the decade.