Government Bars Charges on UPI Transactions Up to Rs 2,000

The Union government has issued a formal gazette notification prohibiting banks and payment system providers from levying direct or indirect charges on Unified Payments Interface (UPI) transactions of up to Rs 2,000. The directive, issued under Section 10A of the Payment and Settlement Systems Act, 2007, also extends this protection to payments made via RuPay debit cards. While the notification ensures that small-value digital transactions remain free for users, it establishes a regulatory framework that leaves the door open for potential charges on transactions exceeding the Rs 2,000 threshold.

The notification follows the passage of the Taxation and Other Laws (Amendment) Bill, 2026, during the Parliament's Monsoon Session, which concluded on August 13, 2026. This legislation amended Section 10A of the Payment and Settlement Systems Act to provide an enabling framework for the imposition of a Merchant Discount Rate (MDR) on UPI and other electronic payment modes. Government officials have clarified that any future fees introduced for higher-value transactions would be borne by merchants rather than individual consumers, maintaining the zero-cost structure for person-to-person transfers.

In a statement accompanying the policy shift, the government emphasized the need for a self-sustaining revenue model to support the rapid growth of India's digital payments infrastructure. Officials noted that the exponential increase in transaction volumes requires continuous, significant investment in cybersecurity, fraud prevention, and system upgrades. The government argued that reliance on subsidies is not a viable long-term strategy for the next phase of digital expansion and that a balanced framework is necessary to ensure the ecosystem remains robust and competitive.

The decision arrives as UPI continues to dominate India's digital payment landscape, having processed 24.51 billion transactions worth Rs 29.82 trillion in August 2026 alone. While transactions under Rs 2,000 are now protected from charges, data indicates that larger payments represent a significant portion of the total value. Reports suggest that while transactions exceeding Rs 2,000 account for only about 4% of total person-to-merchant UPI volume, they represent approximately two-thirds of the total value processed. The government has not yet finalized the specific MDR rates for these higher-value transactions, with the UPI and Services Steering Committee, led by the National Payments Corporation of India, expected to determine the future fee structure.