The Current State: Mostly Free
As of today, using UPI is free for most people and businesses in India. When you scan a QR code to pay for your groceries or send money to a friend, neither you nor the recipient pays a fee. This is thanks to a government policy called 'zero Merchant
Discount Rate' (MDR) for UPI and RuPay transactions, which has been in place since January 2020. An MDR is a fee that merchants pay to their bank for processing digital payments. By making it zero, the government aimed to accelerate the adoption of digital payments across the country—and it worked spectacularly.
Why is Everyone Talking About Charges Now?
The conversation around UPI charges has been reignited by a few key developments. Recently, Parliament passed the Taxation and Other Laws (Amendment) Bill, 2026, which includes a provision that enables the government to notify charges on certain digital payment modes. This doesn't mean charges are coming tomorrow, but it creates a legal framework for them to be introduced later. The push is coming from the industry itself—banks, payment service providers, and fintech companies. They argue that while UPI is free for users, it costs them a significant amount to run the infrastructure, ensure security, and process billions of transactions. They believe a sustainable revenue model is needed for the long-term health and innovation of the payment ecosystem.
P2P vs. P2M: What's the Difference?
To understand who might be affected, it's crucial to know the difference between two types of transactions. Person-to-Person (P2P) transactions are when you send money to another individual, like splitting a dinner bill with a friend. Person-to-Merchant (P2M) transactions are when you pay a business, from the local tea stall to a large supermarket. The government and the Finance Ministry have been very clear on one point: P2P transactions will remain free for users. The entire debate is focused on P2M transactions, and even then, not all of them.
The Focus on 'Large' Merchants
This brings us to the core of the headline. The proposals being discussed are not about charging every corner store. Instead, the focus is on a potential, calibrated MDR specifically for large merchants or for high-value transactions. While no official threshold has been set, discussions have revolved around applying a nominal fee on transactions above a certain amount, like ₹2,000, and only for merchants with a significant annual turnover. For instance, one proposal mentioned imposing a 0.3% to 0.5% MDR on transactions over ₹2,000 for merchants with an annual turnover exceeding ₹1.5 crore. The idea is that small merchants and the vast majority of everyday, low-value transactions would remain unaffected.
What About Charges on Wallet UPI?
There's another layer to this. An interchange fee of up to 1.1% already applies to certain UPI transactions made through prepaid wallets (like Paytm or PhonePe wallets) for amounts over ₹2,000. This fee is paid by the merchant, not the customer. It's designed to compensate the wallet issuer for the cost of the transaction. However, the vast majority of UPI transactions happen directly between bank accounts, which remain free from this specific charge.
The Official Word from the Government
Amid all the speculation, the Finance Ministry has repeatedly clarified its stance. It has stated that UPI is a 'digital public good' and there is no consideration to levy any charges on its services for the public. The government acknowledged the cost recovery concerns of service providers but insisted those must be met through other means. Any decision on a potential MDR for specific merchant categories would be taken by a committee led by the National Payments Corporation of India (NPCI), and it would be nominal and far lower than current credit or debit card charges. For now, the government continues to provide financial support to the ecosystem to encourage digital payment adoption.
