Government Guarantees Zero Charges on UPI Payments Up to ₹2,000 Under New Notification

The Centre has formally protected UPI transactions of up to ₹2,000 from payment charges, with the Ministry of Finance notifying that banks and payment system providers cannot directly or indirectly levy a fee on either the person making or receiving such payments.

The Department of Financial Services issued the notification on September 14 under Section 10A of the Payment and Settlement Systems Act, 2007. The notification has been published in the Gazette of India as S.O. 5067(E), under Gazette ID CG-DL-E-14092026-276170.

The government has specified two electronic payment modes for the no-charge protection: debit cards powered by RuPay and Unified Payments Interface transactions of up to ₹2,000. Banks and payment system providers are prohibited from imposing charges, either directly or indirectly, on persons making or receiving payments through these specified modes.

New Notification Follows Change in UPI Charging Framework

The September notification follows changes made to Section 10A of the Payment and Settlement Systems Act through the Taxation and Other Laws (Amendment) legislation passed by Parliament during the Monsoon Session.

The previous framework had effectively created a blanket statutory zero-MDR regime for UPI and RuPay debit-card payments. The 2026 amendment changed that structure by allowing the Central Government to specify which electronic payment modes and categories would continue to receive statutory protection against charges.

The government has now exercised that power by specifically protecting UPI transactions of up to ₹2,000 and RuPay-powered debit-card payments.

The change is significant because it creates room for a different charging framework to be developed for certain higher-value merchant transactions while preserving free everyday UPI payments.

No Automatic Charge on UPI Payments Above ₹2,000

The notification should not be interpreted to mean that every UPI payment above ₹2,000 will now attract a charge.

The Ministry of Finance had already clarified on August 8 that consumers making UPI payments would continue to face no transaction charges and that all person-to-person, or P2P, transactions would remain free.

Any Merchant Discount Rate introduced in the future would instead apply to a limited category of merchant transactions above a prescribed threshold. The government said such an MDR, if introduced, would be nominal and considerably lower than the rates normally associated with debit and credit card transactions.

The Finance Ministry also made clear that the vast majority of UPI merchant transactions would continue to remain free and that any future MDR would be threshold-based rather than applied across the entire UPI network.

This distinction is important. A merchant-side MDR is a charge associated with accepting a digital payment and is different from imposing a transaction fee on the consumer making the payment.

P2P Transactions Will Continue to Remain Free

Person-to-person UPI transfers will remain outside the proposed MDR framework.

This means ordinary transfers between individuals, such as sending money to family members, friends or another bank account through UPI, will continue without transaction charges irrespective of the government’s consideration of MDR for selected merchant payments.

The Finance Ministry has repeatedly stated that ordinary UPI users will not be charged for making payments and has rejected suggestions that the 2026 legislative changes were intended to impose a general transaction fee on consumers.

The possible future change is therefore centred on the commercial side of the UPI ecosystem rather than on individuals using UPI for everyday payments.

MDR Decision to Be Taken Separately

The September 14 notification itself does not announce an MDR rate for transactions above ₹2,000.

The government said in August that decisions on an MDR framework, if one is introduced, would be taken through the UPI and Services Steering Committee headed by the National Payments Corporation of India.

Any such framework would have to determine which categories of merchants would be covered, the transaction threshold above which MDR could apply and the rate to be charged.

The Centre has indicated that smaller merchants will continue to receive protection because of their importance to the expansion of digital payments. This could allow any eventual MDR structure to distinguish between small merchants and larger commercial establishments rather than applying the same charges across the entire retail economy.

Why the Government Changed the Law

The Ministry of Finance has presented the change as an attempt to make the UPI ecosystem financially sustainable as the platform continues to expand.

UPI has developed from a relatively small payment network after its launch in 2016 into the dominant retail digital-payment platform in India. In July 2026 alone, UPI processed around 2,366 crore transactions valued at ₹29.9 lakh crore.

Processing transactions at this scale requires continuing investment by banks, payment service providers and fintech companies in computing infrastructure, cybersecurity, fraud detection, network capacity and system resilience.

The government argues that the payment ecosystem will require a sustainable revenue structure if it is to continue expanding while maintaining the infrastructure necessary to process rapidly increasing transaction volumes.

At the same time, it has sought to preserve free access for ordinary users and smaller merchants so that the introduction of a new commercial model does not reverse the widespread adoption of digital payments.

Zero-MDR Policy Helped Drive UPI Expansion

India’s zero-MDR policy has played an important role in accelerating UPI adoption.

Since January 2020, merchant discount rates on RuPay debit-card and UPI transactions had been eliminated as part of the government’s strategy to encourage digital payments. The Centre subsequently introduced incentive schemes under which banks and other payment-system participants received government support for processing low-value UPI transactions.

Under the earlier incentive programme, UPI person-to-merchant transactions of up to ₹2,000 involving small merchants qualified for government incentives while remaining free of MDR for the merchant and consumer.

This helped remove one of the principal barriers to digital-payment acceptance among small retailers, where even relatively small transaction fees could discourage merchants from accepting electronic payments.

The new framework attempts to retain that protection for low-value payments while creating the legal flexibility to develop a different revenue model for selected higher-value commercial transactions.

UPI Users Remain Protected

For ordinary users, the government’s position remains that making UPI payments will continue to be free.

The immediate effect of the September 14 Gazette notification is to give explicit statutory protection to UPI transactions up to ₹2,000 and to RuPay-powered debit-card payments. Any separate MDR regime for higher-value merchant transactions would require another decision and would not amount to a general charge on consumers.

The distinction will be important as the government develops the next phase of India’s UPI payment framework. Rather than abandoning the zero-cost model for ordinary users, the policy is moving toward a differentiated system in which low-value transactions and individuals remain protected while the government considers whether some larger commercial transactions should contribute towards the cost of operating the rapidly expanding payment infrastructure.

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