UPI payments above Rs 2,000 may no longer be free: What you need to know

The government has kept UPI payments up to Rs 2,000 free while allowing room for charges on higher merchant transactions. The final impact will depend on NPCI's framework, with RuPay debit card payments still protected.

In Short

• UPI transactions up to Rs 2,000 remain free of charges
• RuPay debit card payments will stay free without any ceiling
• Final MDR rates and framework to be announced by NPCI

The government's latest clarification on UPI charges has kept small digital payments free, but it has also opened the door for banks and payment companies to levy fees on larger transactions made through the Unified Payments Interface.

A notification issued by the Department of Financial Services on Monday specified that UPI transactions of up to Rs 2,000 will not attract charges from banks or system providers. Payments made using debit cards powered by RuPay will also remain free of such charges.

The move is huge because it effectively creates a threshold beyond which merchant charges on UPI could be introduced.

A detailed operational directive on the proposed merchant discount rate (MDR) is expected from the National Payments Corporation of India (NPCI), reported The Economic Times.

So, while consumers making UPI payments are not being asked to pay a new fee, merchants could eventually face charges when they accept larger UPI payments.

WHAT HAS THE GOVERNMENT ACTUALLY SAID?

The government notification does not itself announce a new MDR rate.

Instead, it specifies that UPI transactions up to Rs 2,000 and RuPay-powered debit card payments cannot be charged by banks or system providers.

The notification says no bank or system provider can impose a charge, directly or indirectly, on a person making or receiving a payment through the specified electronic modes.

This distinction is important. The government has not yet announced how much merchants would be charged for larger UPI transactions.

The detailed operational framework is expected to be issued by NPCI. The rates would be decided by the "UPI and services steering committee", headed by NPCI along with other stakeholders, as per the report.

WHY IS RS 2,000 BENCHMARK IMPORTANT?

UPI has operated without an MDR since January 2020, when the government changed the rules to make UPI payments free and encourage digital payments.

The new notification effectively draws a line at Rs 2,000 for UPI. Payments up to that amount will remain protected from charges, while larger transactions could potentially become subject to an MDR once the operational framework is finalised.

This does not mean merchants will immediately start paying a fee on every UPI transaction above Rs 2,000. The actual rates and implementation mechanism are yet to be announced.

WHO WILL PAY THE UPI FEE?

If MDR is brought back for larger UPI transactions, the fee is expected to be charged to merchants rather than consumers, according to government officials cited previously by Reuters.

MDR is the fee paid by a merchant to a bank or payment service provider for accepting a digital payment. It is already a familiar feature of card payments, although UPI has remained free of MDR since 2020.

The government had said in August that any future MDR on UPI would be nominal and limited to a small set of merchant transactions, with the vast majority of merchant transactions not attracting fees. ET also reported this position.

WHY COULD LARGE UPI PAYMENTS BE CHARGED?

The biggest reason is the rapidly growing scale of UPI and the cost of running the payments ecosystem.

UPI is operated by NPCI and has become the world's largest retail fast-payment system by transaction volume, according to a 2025 IMF report.

In August alone, UPI processed 24.51 billion transactions worth Rs 29.82 trillion.

With such a large payment base, even a small fee on a portion of transactions could create a significant revenue stream for banks and payment companies.

Jefferies estimated in August that MDR on larger UPI transactions could generate Rs 5,000 crore to Rs 10,000 crore annually for the payments industry.

Data CareEdge shows why the Rs 2,000 threshold could be significant.

Peer-to-merchant, or P2M, transactions account for around 29% of the total value of UPI transactions, according to the rating agency.

More importantly, 67.2% of P2M transaction value is above Rs 2,000.

This means a substantial portion of the value of UPI payments made to merchants falls into the category that could potentially attract MDR once the new framework is operational.

The impact, however, will depend on the final MDR rates and which merchants or transactions are included.

WILL CUSTOMERS HAVE TO PAY MORE?

For now, there is no indication in the notification that consumers will have to pay a fee for making UPI payments.

The government has specifically protected UPI transactions up to Rs 2,000 from charges. The notification also covers the person receiving the payment.

If MDR is introduced on larger merchant transactions, the stated expectation is that the merchant, rather than the consumer, would bear the fee.

However, merchants could potentially factor payment costs into their pricing or business decisions. That would depend on how the MDR system is eventually implemented.

WHAT ABOUT RUPAY DEBIT CARDS?

RuPay debit card payments have been given a separate protection in the notification.

Unlike UPI, the notification does not specify a Rs 2,000 ceiling for RuPay-powered debit card payments. It simply identifies debit cards powered by RuPay as a specified electronic mode on which banks or system providers cannot impose charges.

So, based on the notification, RuPay debit card payments will remain free, while the Rs 2,000 threshold specifically applies to UPI.

WHY THIS MATTERS FOR PHONEPE AND GOOGLE PAY

The development is particularly relevant for the digital payments industry because UPI has become deeply embedded in everyday commerce.

Google Pay and Walmart-owned PhonePe together account for around three-fourths of monthly UPI transaction volumes, according to the information provided by Reuters.

The introduction of MDR on a portion of UPI transactions could therefore create a new revenue stream across the payments ecosystem, including for banks and payment service providers.

At the same time, the government has indicated that the vast majority of merchant transactions should not attract a fee, meaning the final structure will be crucial in determining how widely MDR is applied.

- Ends