India has proposed a legal change that could permit merchant fees on selected UPI payments, including transactions above Rs 2,000. No fee has been finalised, and the proposals mainly target large merchants rather than customers, small shops or personal transfers.
UPI Fee Has Not Been Introduced Yet
UPI payments above Rs 2,000 are not automatically becoming chargeable. A proposed amendment to the Payment and Settlement Systems Act would create a legal framework allowing the government to introduce a merchant discount rate on selected electronic payments in the future.
The proposal was introduced in Parliament by Finance Minister Nirmala Sitharaman. However, no final decision has been taken on the fee, its rate, the transaction threshold or the categories of merchants that would be covered. UPI transactions therefore continue under the existing system unless separate rules are officially notified.
MDR is a processing fee paid by a merchant to banks and payment service providers. It is different from a direct transaction fee charged to a person sending money. This distinction means headlines suggesting that every customer will soon pay for UPI transactions above Rs 2,000 may be misleading.
UPI Charges Could Target Large Merchants
One option under consideration is an MDR of between 0.3% and 0.5% on merchant transactions exceeding Rs 2,000. Reports indicate that this model could apply to businesses with annual turnover above Rs 1.5 crore.
Under this proposal, a Rs 3,000 payment could attract a merchant fee of approximately Rs 9 to Rs 15. The amount would normally be paid by the business accepting the payment, not directly deducted from the customer’s bank account.
Another option being examined is to determine charges according to a merchant’s annual turnover rather than the value of each transaction. Policymakers may also introduce a maximum fee to prevent high-value payments from attracting excessive charges. None of these options has been approved.
Customers And Small Shops May Remain Exempt
The proposals being discussed are intended to keep UPI free for ordinary consumers and smaller merchants. Person-to-person transfers, including money sent to family members or friends, are also unlikely to be covered by a merchant discount rate.
Customers may therefore continue to use UPI for routine payments such as groceries, local transport, food delivery and utility bills without paying a direct fee. However, larger businesses could eventually decide to absorb the processing cost, adjust product prices or encourage customers to use alternative payment methods.
Transactions above Rs 2,000 account for only about 4% of merchant-payment volume but nearly 67% of the total value, according to a Jefferies analysis cited by Reuters. This makes higher-value payments an important potential revenue source for banks and payment companies.
Why The Government Is Considering UPI Fees
Banks and payment companies have argued that operating UPI requires continued investment in servers, cybersecurity, fraud prevention, customer support and transaction-processing infrastructure. Since merchants currently pay no MDR on UPI, service providers have limited direct revenue from processing these payments.
UPI handled approximately 23.6 billion transactions worth Rs 29.9 trillion in July 2026, highlighting the scale of the network. Official government data also shows that UPI recorded 24,161.69 crore transactions worth Rs 314.23 lakh crore during the 2025–26 financial year.
The proposed amendment therefore opens the door to future charges but does not itself impose them. Customers and merchants should wait for an official notification specifying the fee, threshold, exemptions and implementation date before assuming that UPI payments above Rs 2,000 will become chargeable.
