Government Clarifies UPI Will Remain Free for Citizens, Possible MDR Only for Limited Merchant Transactions

The Government of India has issued a categorical clarification that UPI payments will continue to remain free for ordinary citizens, amid concerns surrounding proposed changes to the Payment and Settlement Systems Act, 2007.

According to the government, consumers making payments through the Unified Payments Interface will not face transaction charges, while all Person-to-Person, or P2P, transactions will continue to remain completely free.

The clarification comes following debate over provisions in the Taxation and Other Laws (Amendment) Bill, 2026, which proposes changes to Section 10A of the Payment and Settlement Systems Act.

The government said the proposed change is intended to create an enabling framework for the long-term sustainability of the UPI ecosystem rather than introduce blanket charges on users.

No Charges for UPI Users

The government has made four key assurances regarding the future charging structure of UPI.

Individual consumers using UPI will continue to make payments without transaction charges.

Person-to-Person transfers will remain free.

If a Merchant Discount Rate, or MDR, is introduced in the future, it would apply only to a limited category of merchant transactions above a prescribed threshold.

Even in such cases, the government says the proposed MDR would be nominal and considerably lower than the charges generally associated with debit and credit card transactions.

The vast majority of UPI transactions conducted by merchants are therefore expected to continue without charges.

The government has specifically ruled out a blanket MDR across all UPI merchant transactions.

NPCI-Led Committee to Decide Future MDR

Any decision on the introduction of MDR will not take effect automatically through the legislative amendment.

Once Parliament passes the proposed legislation amending Section 10A of the PSS Act, the matter will be considered by the UPI and Services Steering Committee headed by the National Payments Corporation of India, or NPCI.

The committee would determine whether an MDR is required, the types of transactions to which it could apply and the appropriate threshold and rate.

This means the proposed amendment effectively creates the legal flexibility required to develop a future financing mechanism for the payment ecosystem rather than immediately imposing charges.

Why the Government Wants Changes to the PSS Act

The government argues that the enormous expansion of UPI has fundamentally changed the technological and financial requirements of India’s digital payment infrastructure.

Billions of transactions are now processed through the platform every month, requiring continuous investment in servers, network capacity, fraud detection, cyber defence and payment security.

With transaction volumes continuing to increase, the ecosystem will need increasingly sophisticated infrastructure to maintain speed, reliability and resilience.

Cybersecurity has become particularly important as digital payments face evolving risks ranging from financial fraud and social engineering to increasingly advanced technological attacks.

The government therefore maintains that the UPI ecosystem must develop a sustainable financial model capable of funding continued technological upgrades.

Reducing Dependence on Subsidies

UPI’s rapid expansion has partly been supported through government incentives and subsidies designed to encourage digital transactions.

However, the government believes relying indefinitely on subsidies alone may not provide a sustainable model for the next stage of the system’s growth.

A carefully designed revenue mechanism could help payment companies, banks and technology providers continue investing in infrastructure while ensuring that citizens and small transactions remain protected from additional costs.

The challenge is therefore to balance financial sustainability with affordability and inclusion.

The proposed framework appears designed to achieve that by retaining zero-cost transactions for individuals while leaving room for nominal charges on a limited category of higher-value commercial payments.

Encouraging More Competition in Digital Payments

Another objective is to encourage more companies to participate in India’s rapidly expanding payments industry.

Operating a digital payment platform at national scale requires significant investments in software, cybersecurity, computing infrastructure, compliance systems and customer support.

A sustainable revenue framework could make it commercially viable for additional companies to enter or expand within the UPI ecosystem.

Greater participation could, in turn, reduce concentration risks and encourage innovation across payment applications and financial technology services.

For the government, this is also linked to the resilience of the country’s financial infrastructure.

A highly distributed ecosystem involving multiple capable players is less vulnerable to technological or operational disruptions than one dependent on a limited number of providers.

Government Rejects Claims of External Pressure

The government also rejected reports suggesting that external or foreign pressure was responsible for the proposed policy changes.

Such claims were described as false and misleading.

The government pointed out that India introduced UPI in 2016 and subsequently pursued policies that made UPI transactions free for both citizens and merchants from January 2020.

Since then, the system has grown into the world’s largest real-time interoperable payment network.

The Centre argued that these policies themselves demonstrate that the development of UPI has been shaped primarily by India’s domestic priorities surrounding financial inclusion, digitalisation and payment infrastructure.

UPI Processes ₹29.9 Lakh Crore in a Single Month

The scale reached by UPI illustrates why questions surrounding its long-term funding structure have become increasingly important.

In July 2026 alone, UPI processed approximately 2,366 crore transactions worth ₹29.9 lakh crore.

What began as a comparatively small interoperable payment platform in 2016-17 has become embedded in everyday economic life across India.

UPI is now used for everything from purchasing groceries and paying auto-rickshaw drivers to utility payments, retail transactions, subscriptions and transfers between individuals.

Its rapid adoption has also dramatically reduced dependence on cash for small-value transactions.

UPI Expands Beyond India

UPI’s development is increasingly becoming international as well.

According to the government, UPI is currently live in 11 foreign countries, while several other countries have expressed interest in adopting or integrating with India’s digital payment architecture.

This has turned India’s payments infrastructure into an important component of the country’s broader financial and technological diplomacy.

Cross-border UPI integration also offers the potential to simplify payments for Indian tourists, migrant workers, businesses and overseas communities.

The Next Phase of UPI Growth

India’s digital payment revolution is still far from complete.

The next major phase will involve expanding high-quality digital payment services deeper into rural and semi-urban India, while improving reliability in areas with weaker connectivity and extending digital financial services to communities that remain underserved.

At the same time, the payment system must handle substantially larger transaction volumes while protecting users from fraud and maintaining near-instantaneous payment processing.

That will require continuing investment in cybersecurity, network infrastructure, fraud monitoring and technological innovation.

The proposed changes to the PSS Act should therefore be understood within this wider transition.

India is moving from the phase of rapidly building and popularising UPI towards the more complex task of ensuring that the world’s largest real-time payment ecosystem remains secure, technologically advanced and financially sustainable for decades.

Citizens Continue to Pay Nothing

For ordinary UPI users, however, the government’s message is straightforward.

UPI payments will continue to remain free for citizens.

Person-to-Person transfers will remain free, and everyday consumer transactions will not attract charges.

Any future MDR would be restricted to a limited category of merchant transactions above a specified threshold and would be introduced only after consideration by the appropriate UPI governance mechanism.

With more than 23 billion transactions being processed in a single month, UPI has evolved from a domestic fintech initiative into a piece of national economic infrastructure.

The challenge before policymakers is no longer merely to expand it, but to ensure that a payment system used by hundreds of millions of Indians every day remains affordable for citizens while possessing the financial and technological strength necessary for its next decade of growth.

---

Source: Ministry of Finance, Government of India / Press Information Bureau, 8 August 2026.

---