The government has clarified that Unified Payments Interface (UPI) transactions will continue to remain free for consumers, even as it considers allowing a small merchant fee on a limited category of commercial transactions in the future. The clarification comes amid concerns that recent legislative changes could pave the way for charges on UPI payments. Government officials have stressed that ordinary users will not have to pay for making transactions, while person-to-person transfers and most merchant payments will continue without charges. The Payments Council of India (PCI) has also said that UPI will remain free for consumers as well as small merchants, including neighbourhood kirana stores.
Who could face charges
While consumers are expected to remain outside the charging framework, the government could eventually permit a nominal Merchant Discount Rate (MDR) on a limited category of merchant transactions. MDR is the fee paid by a merchant to banks and payment service providers for processing digital transactions. The cost is generally borne by the merchant rather than directly by the customer. No final decision has yet been taken on the structure or rate of any future charge. One proposal under consideration would apply MDR only to transactions above a specified value involving merchants whose annual turnover crosses a certain threshold.
Proposals discussed within the payments industry include an MDR of around 0.3 to 0.5 per cent on UPI transactions above Rs 2,000 for merchants with annual turnover exceeding Rs 1.5 crore. The final framework, however, could differ, and the government has not announced a definitive rate. The approach is intended to ensure that ordinary consumers and small businesses continue to benefit from free digital payments while allowing banks and payment companies to recover some of the costs involved in operating the rapidly expanding UPI ecosystem. Industry players have argued that maintaining UPI infrastructure requires substantial spending on technology, cybersecurity, fraud prevention and innovation.
Why the debate started
The debate intensified after the government moved to amend the Payment and Settlement Systems Act through the Taxation and Other Laws (Amendment) Bill, 2026. The legislative change would remove the existing statutory restriction that prevents banks and payment service providers from levying MDR on UPI and RuPay debit-card transactions. It would therefore create a legal framework under which merchant charges could be introduced in the future. However, removing the prohibition does not automatically mean that UPI users will be charged.
The government has sought to distinguish between charges imposed on consumers and a possible MDR levied on select businesses for accepting digital payments. The PCI has reiterated that consumers will continue to make instant UPI payments without transaction charges and that small merchants will remain outside the proposed fee framework. The issue has assumed significance because of UPI's enormous role in India's retail payments system. Payment companies and banks have long argued that a sustainable revenue model is needed to support the infrastructure required to process the rapidly growing volume of transactions. For users, however, the government's message remains that sending money to another person or paying a merchant through UPI will continue to be free, while any future charge is likely to be restricted to select commercial transactions involving larger businesses.