Centre tells banks no charges on RuPay debit card payments or UPI transactions up to ₹2,000

The Centre on Monday said it is exercising powers under Section 10 A of the Payment and Settlement Systems and specified that banks cannot impose charges on Unified Payments Interface (UPI) transactions or RuPay debit card payments up to ₹2,000 in value.

The finance ministry, in a notification, stated that “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”.

However, the notification was silent on charges on transactions over that amount, indirectly paving the way for merchant discount rate (MDR) to be introduced on higher value UPI transactions.

The electronic modes of payment specified included debit cards powered by RuPay and UPI transactions up to ₹2,000. Both RuPay and UPI are managed by the National Payments Corp. of India (NPCI).

MDR charges

Notably, this comes after the Lok Sabha on 6 August passed the Taxation and Other Laws (Amendment) Bill, 2026, which amended the Payment and Settlement Systems Act, 2007. The Bill allowed the government to decide which digital payment methods may attract fees, as it seeks flexibility to levy merchant charges to ensure a sustainable funding model for the platform's next phase of growth, and addresses a long-standing demand of the digital payments industry.

In clarifications issued on social media in August, Union Finance Minister Nirmala Sitharaman and the Payments Council of India (PCI) said MDR on digital transactions applies to merchants, not customers. She added that the charge would support banks and fintech to invest more in infrastructure and security.

How is MDR related to charges on UPI transactions?

The legislation opened the door to scrapping the zero MDR provision under Section 10A and allowed banks and payments system providers (PSPs) to likely impose charges on high-value UPI transactions.

Regulated by the Reserve Bank of India (RBI), MDR is the fee businesses pay to banks and PSPs to process online transactions made by customers. Since 2020, this has stood at 0% for UPI and RuPay debit card transactions, as the Centre sought to promote digital payments and mandated no MDR for customers and merchants.

In practice, this works like this: A customer pays ₹1,000 for an item using a credit or debit card. Of this, a small percentage is deducted and split between the banks on both ends, while the merchant receives the net amount. At present, for UPI transactions, merchants receive the full transaction amount.

Currently, the cost of such transactions and upkeep of the UPI platform is borne by banks, NPCI and payment service providers. The government currently subsidizes part of the cost incurred by such players on payments of up to ₹2,000. The Budget for 2026-27 estimated the subsidy payout to be ₹2,000 crore as against ₹2,196.21 crore paid in 2025-2026 and ₹1,922.77 crore in 2024-25.

Why is there a discussion around UPI charges now?

The PCI, in its FAQs, noted that UPI has evolved from a new payment platform into the world's largest real-time payment system. “As the ecosystem continues to expand, discussions are taking place on how to sustainably support the infrastructure that enables billions of secure transactions every month, while continuing to ensure that consumers and small merchants remain protected,” it stated.

“As transaction volumes continue to grow, sustained investment in security, resilience, innovation, fraud prevention and infrastructure will remain essential to ensure that UPI continues to serve consumers and businesses reliably for years to come,” it added.

The government and NPCI are now expected to notify a specific rate or fees that may be levied on UPI transactions, as per industry experts, many of whom expect the roll-out of a tiered charge of 0.3-0.5% for varying amounts of such transactions.

The UPI platform processed 241.6 billion transactions worth ₹314.2 lakh crore in FY26, up 30% on year in terms of volume and 21% in terms of value of transactions. UPI had over 55 crore users as of August 2026, as per NPCI data. The platform processed 24.5 billion transactions amounting to ₹29.8 lakh crore in August 2026, a year-on-year rise of 22% in volume and 20% in value terms.

In March 2026, a Parliamentary Standing Committee on Finance had called for a “sustainable funding mechanism” for UPI given that the zero-MDR framework is financially unsustainable in the long run. Saying that UPI has the potential to grow ten-fold over the coming years, and add 600 million users and process 100-150 billion transactions every month, the panel had noted that this would require investments in technology, resilience and merchant acceptance infrastructure, which cannot be supported only by government incentives, and that the absence of a viable revenue stream had constrained banks and PSPs from investing in innovation, cybersecurity and infrastructure needed to support the next phase of UPI growth.

The committee noted that the incentive support under the government scheme constitutes only 11% of the cost incurred by the industry and 14% of the potential MDR collected by the industry.