Archive · 16 Sep 2026
India’s UPI Faces New Fees After Years of Free Payments
UPI lets people in India pay using their phones.
For many years, most UPI payments were free.
Starting October 15, some shops will have to pay a small fee when customers make larger payments.
Customers will not officially have to pay this fee.
Payments between two people will stay free.
Small merchants and several essential businesses will receive special protections.
The government says only about four percent of merchant transactions should be affected.
Some merchants might still try to charge customers or encourage cash payments.
If this is not controlled, fewer people might use UPI and India could become more dependent on cash again.
Merchants will pay a 0.4% Merchant Discount Rate on UPI payments above Rs 2,000 from October 15.
Person-to-person UPI transfers will remain free, while small merchants earning up to Rs 1 lakh monthly through QR codes are exempt.
The fee will apply only to certain person-to-merchant transactions, with special limits for essential and low-margin sectors.
Banks and payment companies pushed for fees after bearing much of the cost of UPI’s free transactions.
The government must prevent merchants from passing the fee to customers or driving consumers back toward cash payments.
- Who
- The Indian government, banks, payment companies, merchants and UPI users are involved.
- What
- A 0.4% Merchant Discount Rate will be introduced for certain UPI transactions above Rs 2,000.
- When
- The new fee is scheduled to begin on October 15; the article does not specify a year.
- Where
- Across India’s UPI payment system.
- Why
- Banks and payment companies sought a limited fee after absorbing much of the cost of maintaining free UPI transactions, while the government aims to protect smaller merchants and consumers.
Keep UPI Broadly Free
Allow Limited Merchant Fees
Effect on digital payments
Keep UPI Broadly Free
Introducing fees could encourage merchants to impose unofficial UPI charges, offer cash discounts or split bills, potentially weakening UPI and formalisation.
Allow Limited Merchant Fees
A narrowly targeted fee can help banks and payment companies recover some costs while leaving person-to-person payments and many small merchants unaffected.
Protecting consumers
Keep UPI Broadly Free
Merchants may try to pass the fee on to customers despite the government’s direction, requiring strong complaints procedures and penalties.
Allow Limited Merchant Fees
The government has prohibited passing the fee to consumers and has created exemptions, sector caps and transaction limits to protect poorer and middle-class users.
- New fee
- A 0.4% Merchant Discount Rate will apply to certain UPI payments.
- Threshold
- The fee applies to person-to-merchant transactions exceeding Rs 2,000.
- Customer liability
- The fee is to be paid by the merchant, not the customer.
- Person-to-person payments
- These transactions will remain free.
- Small-merchant exemption
- Merchants receiving up to Rs 1 lakh per month through UPI QR codes are exempt.
- Essential-sector cap
- For sectors including railways, fuel, telecom, insurance, utilities, education and agricultural inputs, the fee is limited to Rs 5 per transaction.
- Expected impact
- About four percent of merchant transactions are expected to be affected.