Government announces no bank fees on UPI transactions up to Rs 2,000

The Ministry of Finance on Monday notified that banks and system providers cannot levy charges on UPI transactions of up to Rs 2,000 and RuPay debit card payments. “No bank or system provider shall impose, whether directly or indirectly, any charge upon a person making or receiving a payment by using the electronic modes of payment specified in paragraph above,” the government notification said in which it specified RuPay debit cards and UPI transactions of up to Rs 2,000.

Only 4% of person-to-merchant (P2M) UPI payments in 2025-26 were for more than Rs 2,000. And these 4% of transactions made up around two-thirds of UPI payments by value. In 2025-26, more than 24,000 crore UPI transactions worth Rs 314 lakh crore were made. Also Read | Keep UPI free, and fund it from the savings it generates The notification comes after the Taxation and Other Laws (Amendment) Bill, 2026 – passed by Parliament last month – amended Section 10A of the Payment and Settlement Systems Act, 2007 such that the exemption from any bank charges to electronic payments under section 269SU of the Income-tax Act, 1961 was removed.

Section 269SU applied to every person having a business turnover of over Rs 50 crore. Section 10A of the Payment and Settlement Systems Act, 2007 said no bank or system provider can impose any charge on payments made through electronic modes prescribed under Section 269SU. These modes were RuPay debit cards, BHIM-UPI, and UPI-QR code.

As such, the amendment had paved the way for a Merchant Discount Rate (MDR) fee to be imposed on UPI and RuPay debit card payments to large merchants such as Amazon and Flipkart. However, the government has repeatedly said that small value transactions and money paid by one individual to another will not face any charges.

This is what has been notified on Monday. “The recent amendment to the Payment and Settlement Systems Act (PSS Act) has generated debate, with some misinterpreting it as a move to impose charges on ordinary users. In reality, the amendment is an enabling provision designed to ensure UPI’s long-term sustainability, technological advancement, and resilience against emerging risks,” the finance ministry had said on August 8 amid speculation that charges would apply on all UPI payments.

Also Read | How UPI became India’s biggest digital payments system — and its next challenge Banks and payment service providers have for years been saying that the cost of maintaining digital payments infrastructure is rising, with the Standing Committee on Finance noting in a report in March that the “absence of MDR makes the UPI ecosystem financially unsustainable”.

Usually in the range of 1-3%, an MDR is levied on merchants by banks that process debit and credit card payments to help meet transaction processing, settlement, and infrastructure costs. Since January 2020, there has been no MDR on RuPay debit cards and UPI transactions to promote the adoption of digital payments across the country.

In lieu of the lack of MDR, the government has been subsidising payments of up to Rs 2,000 made to small merchants through its ‘Incentive scheme for promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M)’. The incentive offered is capped at 0.15% of the transaction value.

Large merchants are not covered under this scheme. The Budget for 2026-27 estimated the subsidy payout under this scheme to be Rs 2,000 crore in the current fiscal. In 2025-26, Rs 2,196.21 crore was paid as subsidy, up from Rs 1,922.77 crore in 2024-25. However, the Ministry of Finance’s Department of Financial Services told the Standing Committee on Finance earlier this year that the payments industry was incurring an annual cost of Rs 20,700 crore for person-to-merchant transactions.

According to reports, an MDR of around 0.4% may be levied on high-value person-to-merchant UPI payments.