The government has retained the no-charge regime for small-value UPI payments while signalling a possible change in the way larger digital transactions are handled. Under a new notification, UPI payments of up to Rs 2,000 and transactions made through RuPay debit cards have been placed under a statutory protection from charges, potentially paving the way for a regulated fee structure for some higher-value UPI merchant payments.
The Centre has formally notified changes under the Payment and Settlement Systems Act, 2007, clarifying the electronic payment modes on which banks and payment system providers cannot impose charges.
The notification, issued under Section 10A of the legislation, specifically covers RuPay-powered debit cards and UPI transactions up to Rs 2,000. It states that no bank or system provider can directly or indirectly levy a charge on a person making or receiving a payment through these specified modes.
The move is significant because UPI has become one of India's most widely used digital payment platforms, particularly for everyday purchases ranging from groceries and transport to small retail transactions. By retaining the statutory protection for payments up to Rs 2,000, the government has sought to ensure that the mass-use segment of UPI remains free for consumers.
At the same time, the revised wording has drawn attention to transactions above the Rs 2,000 threshold. Unlike the earlier blanket formulation that protected UPI payments from charges, the latest notification specifies the threshold within the protected category. This creates room for a possible pricing mechanism for selected higher-value merchant transactions.
Any such charge would primarily relate to the merchant-payment ecosystem rather than automatically becoming a fee imposed on ordinary UPI users. One mechanism being discussed in this context is the Merchant Discount Rate, or MDR, under which merchants or other participants in the payment chain could bear a small transaction cost.
The possibility of introducing MDR on larger UPI merchant payments has been debated for some time. Banks and payment companies have argued that maintaining the enormous UPI infrastructure involves substantial costs, while policymakers have also been keen to ensure that any fee structure does not discourage digital payments or burden consumers.
The latest notification therefore represents a balancing act. On one side, it protects the low-value transactions that form an important part of India's everyday digital economy. On the other, it potentially provides greater flexibility to develop a sustainable revenue model for the payments industry.
Industry estimates cited in reports suggest that merchant fees on larger UPI transactions could generate between Rs 5,000 crore and Rs 10,000 crore annually for the payments ecosystem if an appropriate MDR framework is introduced. However, the notification itself does not announce a specific MDR rate or state that such charges will immediately be imposed.
For consumers, the immediate takeaway is relatively straightforward: UPI payments up to Rs 2,000 remain protected from charges under the new notification, while RuPay debit-card payments also continue to enjoy the statutory no-charge protection specified by the government.
For merchants, however, the development could eventually mean a different cost structure, particularly for businesses handling large volumes of higher-value digital payments. The precise impact will depend on whether the government and regulators subsequently introduce an MDR framework and, if so, how it is structured.
The decision also highlights the changing nature of India's digital-payment landscape. UPI began as a system designed to make instant bank-to-bank transfers simple and inexpensive, but its enormous expansion has created a much larger financial ecosystem involving banks, payment apps, technology companies and merchants.
The challenge now is to preserve UPI's biggest advantage — convenience and affordability — while ensuring that the institutions supporting the network have a sustainable business model. The latest notification does not immediately change the cost of everyday UPI payments, but it could mark the beginning of a new phase in India's digital-payment policy, particularly for larger merchant transactions.
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