The Centre has clarified that banks and payment system providers cannot levy direct or indirect charges on Unified Payments Interface (UPI) transactions of up to ₹2,000. The same protection applies to RuPay debit-card payments up to the threshold. The clarification, notified on September 14, 2026, comes amid a wider debate over whether Merchant Discount Rate (MDR) could return for certain higher-value UPI transactions.
The government has maintained that ordinary users and person-to-person payments should not face transaction charges, while the payment industry has been seeking a sustainable way to fund the infrastructure behind India’s rapidly expanding digital-payments network.
What The New Rule Means For UPI Users
The latest notification provides explicit protection for small-value digital payments. It states that banks and system providers cannot impose any charge, either directly or indirectly, on a person making or receiving a UPI payment of up to ₹2,000. RuPay-powered debit-card payments have also been included under the same no-charge provision.
In practical terms, people using UPI for everyday purchases such as groceries, meals, local transport, medicines and payments to small shops will continue to make transactions within the ₹2,000 limit without a bank or payment-system fee being imposed on them. The government has also clarified that the protection applies to both sides of the transaction, meaning neither the payer nor the recipient can be charged for a qualifying payment.
The notification is significant because it follows a recent amendment to the Payment and Settlement Systems Act that removed the earlier blanket legal restriction and created an enabling framework for the government to decide whether charges could eventually apply to certain digital-payment transactions. That change had fuelled speculation that UPI users could soon be asked to pay for making payments.
However, the government has repeatedly sought to distinguish between consumer charges and MDR paid within the payments ecosystem. In August, the Finance Ministry stated that consumers would not face transaction charges and that person-to-person (P2P) UPI payments would remain free. It said any future MDR would apply only to a limited set of merchant transactions above a specified threshold and at a nominal rate.
Why The ₹2,000 Threshold Matters
The distinction is particularly important because low-value transactions account for a large share of the everyday use of UPI, even though higher-value payments contribute disproportionately to the total value processed. The government has argued that a sustainable revenue model may be needed as UPI’s transaction volumes continue to grow and the ecosystem requires investment in cybersecurity, fraud prevention, technology and infrastructure.
In August, the Finance Ministry said the proposed legal changes were intended to support UPI’s long-term sustainability, technological advancement and resilience while encouraging wider financial inclusion. It also said the vast majority of merchant transactions would remain free and that any future MDR would be threshold-based rather than imposed across all UPI payments.
For users, therefore, the immediate message is straightforward: UPI payments of up to ₹2,000 remain free, and the government has not announced a blanket charge on UPI. What happens to transactions above ₹2,000 is a separate question. The amended law creates room for a future MDR framework, but the government has not yet announced a final rate or confirmed that every transaction above the threshold will attract a charge. Reuters reported that the September 14 notification effectively opens the door to possible charges on higher-value payments while protecting transactions up to ₹2,000.
The Logical Indian’s Perspective
UPI has become more than a payment tool, it is part of how millions of Indians participate in the formal digital economy, from small vendors to households making everyday payments. Keeping low-value transactions free can help protect accessibility, particularly for people and small businesses who may be more sensitive to even modest additional costs. At the same time, sustaining the technology, security and infrastructure behind such a massive network requires a fair and transparent funding model.
Any future MDR framework should therefore be clearly communicated, proportionate and designed so that the cost does not quietly fall on ordinary users or vulnerable small businesses. Clear communication is equally important to prevent misinformation around what a potential charge actually means. As India expands UPI at home and abroad, how can policymakers ensure that the system remains both affordable for citizens and sustainable for the businesses that keep it running?
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