Digital payments in India are getting a fresh set of rules related to UPI payments. The ministry has recently issued a notification confirming that banks and payment system providers cannot charge any direct or indirect fee on UPI transactions of up to Rs 2,000. Moreover, the same protection also applies to payments made through RuPay debit cards. One thing to note is that the govt has previously confirmed that person-to-person payments will be free much like always, and these fees will only be applied to the person-to-merchant fees. Here’s everything you need to know about the UPI charges above Rs 2,000.
The Finance Ministry has recently notified the merchants that the RuPay-powered debit cards and UPI transactions up to Rs 2,000 will not attract any fees. According to the notification, these payments will be covered under Section 10A of the Payment and Settlement Systems Act, 2007. Hence, the banks and payment system providers cannot charge a fee, either directly or indirectly, from a person making or receiving a payment through these modes.
When we talk about the everyday benefits of this, the payments made for groceries and small bills within the Rs 2,000 limit will not attract transaction fees for the merchants. Small merchants, including street vendors and neighbourhood shops receiving up to Rs 1 lakh a month via UPI QR codes, will also continue to enjoy zero MDR on all their transactions, regardless of value.
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While speaking in the Rajya Sabha on August 10, when Parliament cleared the Taxation and Other Laws (Amendment) Bill, 2026, Finance Minister Nirmala Sitharaman had clarified that the recent amendment will not impose a transaction charge on UPI users. Moreover, she further added that street vendors, cab drivers, kirana stores and other small merchants cannot ask the consumers to pay these fees.
The amendments also removed an earlier restriction that prevented banks and payment companies from charging MDR on UPI transactions, opening the possibility of MDR being introduced for selected merchant payments in the future
MDR, which is also known as the Merchant Discount Rate, is a small processing fee that merchants have to pay when a consumer makes a digital payment at their store. UPI had zero MDR from January 2020 until now, unlike debit or credit cards, which had attracted MDR of up to 0.9 per cent and 1 to 3 per cent, respectively.
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The government has recently notified that a nominal MDR of 0.4 per cent will now apply to person-to-merchant (P2M) transactions above Rs 2,000. However, the authorities have also capped the MDR at Rs 300 per transaction for payments of Rs 75,000 and above.
According to the notification, railways, telecom, insurance, fuel and agricultural inputs, which are considered thin-margin sectors, will attract a flat Rs 5 per transaction. Capital market transactions, including mutual funds, securities and stockbroking, will attract a lower MDR of 0.02 per cent, also capped at Rs 300.
It’s important to note that this charge will stay within the merchant ecosystem, and banks have been directed to ensure merchants don’t pass MDR on to customers. UPI apps are also barred from adding their own platform or hidden fees. The data shared confirms that MDR will only be applied to about 4 per cent of merchant transactions, so roughly around 96 per cent of P2M payments will remain completely unaffected. A dedicated fund, fed by 5 per cent of total MDR collections, has also been set up to support UPI adoption among small merchants.