Winning Bizness Desk

Mumbai.New Delhi: UPI payments above Rs 2,000 will attract a 0.4% charge from October 15, with the maximum fee capped at Rs 300 per transaction. The charge will be imposed on businesses and merchants, not customers, while payments of up to Rs 2,000 will continue to remain free.

The Finance Ministry issued a notification on Monday, clarifying the new fee structure. Payments made through RuPay debit cards have also been included in the exemption.

The government had introduced an incentive scheme in 2021-22 to promote UPI and keep digital payments free. Under the scheme, an incentive of 0.15% was provided on UPI payments of up to Rs 2,000 made by customers to small merchants.

By 2024-25, the government had paid Rs 8,276 crore under the incentive scheme. The number of UPI users in India stood at around 55.5 crore as of June 2026.

Why larger UPI payments are being charged now

The main reason behind the move is the growing volume of high-value merchant payments. In 2025-26, merchants received UPI payments worth Rs 198 lakh crore.

Transactions above Rs 2,000 accounted for only 4% of the total number of payments. However, their value stood at Rs 131 lakh crore, or 66% of the total amount.

To put this in simple terms, suppose a shop receives 100 UPI payments. Around 96 of them are worth Rs 2,000 or less, while only four are above Rs 2,000. Yet those four payments can account for a much larger amount because they may involve cars, mobile phones, electronics or other expensive goods.

The 2025-26 figures showed the same trend. While transactions above Rs 2,000 accounted for only about 4% of merchant payments, they contributed nearly two-thirds of the total value. In other words, for every Rs 100 received by merchants through UPI, around Rs 67 came from these larger transactions.

What exactly is MDR and who pays it

MDR stands for Merchant Discount Rate. In simple terms, it is a fee charged to a merchant or business for providing the facility to accept digital payments. Such charges already exist in card payments.

The MDR is linked to the merchant rather than the customer, meaning its direct impact will be on the payment cost borne by the business. However, if the merchant's cost rises, the business may factor it into its overall operating costs.

Whether this ultimately affects the price of goods or services will depend on future rules and market conditions.

Small merchants remain exempt from the charge

Small merchants receiving up to Rs 1 lakh a month will not be charged on their transactions. UPI app providers will also not be allowed to impose platform fees or hidden charges.

Banks have been advised that merchants should not recover the UPI MDR from customers.

The government has linked the legal changes to the rising use of UPI and the continuing cost of maintaining the digital payments ecosystem, including security, prevention of cyber fraud, technology upgrades and strengthening the payment system.

How merchant charges have reached customers before

• Petrol pumps have recovered card-payment charges from customers as a ‘fuel surcharge’ instead of bearing the cost themselves.
• Jewelers have added a ‘card surcharge’ to bills to recover the 1.5%-2% MDR charged by banks.
• IRCTC, cinema halls, travel companies and payment gateways recover payment-related charges as ‘convenience fees’.
• Some merchants refuse cards for payments below Rs 200 or Rs 500 to avoid fixed processing costs.
• Restaurants and stores have sometimes added a 5% ‘service charge’ to bills despite directly adding MDR to the bill being illegal.

Opposition raises concerns over UPI charges

Congress leader Rahul Gandhi said the government had quietly opened the way for charges on UPI payments. He questioned how merchants would bear the additional cost and argued that it could eventually come from customers' pockets.

Congress president Mallikarjun Kharge said high inflation had already emptied the pockets of ordinary people. He alleged that the government was planning to burden people further by imposing a ‘digital payment tax’.

How UPI works for users

To use UPI, a user first creates a Virtual Payment Address and links it to a bank account. Once this is done, there is no need to remember the bank account number, bank name or IFSC code.

The person making the payment can simply process the payment request using the recipient's mobile number or UPI details, making the transaction quick and convenient.