India’s Unified Payments Interface has transformed everyday transactions by making digital payments fast, convenient and largely free for users. Recent legislative changes introduced in Parliament have raised the possibility that this free model may not remain absolute forever. Proposed amendments create a legal pathway for merchant fees on certain UPI transactions, particularly those above Rs 2,000 involving larger businesses. No charge has been imposed yet, but the framework for future decisions is now being put in place.
What Exactly Has Been Proposed
The government has brought forward amendments linked to the Payment and Settlement Systems Act and the Taxation and Other Laws (Amendment) Bill. These changes remove a statutory provision that currently prevents banks and payment service providers from levying any charge on specified electronic payment modes, including BHIM-UPI and RuPay debit cards.
Under the revised wording, the central government would gain the authority to notify, through future orders, which electronic payment modes must remain free of charges. In practical terms, the law would no longer permanently lock in a zero-charge regime for UPI. Instead, it would give policymakers flexibility to decide later whether, and under what conditions, a merchant discount rate could apply.
Importantly, the Bill itself does not introduce any fee, set any percentage, or specify a Rs 2,000 threshold. Those details remain subjects of discussion and would require separate notifications if the government chooses to act.
Why the Rs 2,000 Threshold Is Being Discussed
Industry and official sources have indicated that one option under consideration is a merchant discount rate on person-to-merchant UPI payments above Rs 2,000. Estimates of the possible rate have ranged from around 0.25 per cent to 0.5 per cent, with some assessments pointing to lower figures. Discussions also suggest that any such levy would likely apply only to larger merchants, for example those with annual turnover above Rs 1 crore or Rs 1.5 crore, while smaller businesses remain exempt.
The logic behind focusing on higher-value transactions is straightforward. Payments above Rs 2,000 form a relatively small share of total UPI volume—around 4 to 5 per cent—yet they account for a substantial portion of the overall transaction value, often estimated near 65 to 70 per cent. Targeting this segment could generate meaningful revenue for banks and payment companies while leaving the vast majority of everyday low-value payments untouched.
Person-to-person transfers are widely expected to stay free. Routine payments for groceries, local transport, small vendors and similar uses would continue under the existing zero-charge approach if the current thinking prevails.
Who Would Pay and Who Would Not
Merchant discount rate is a fee paid by the business accepting the payment to the banks and service providers that process the transaction. It is not, by design, a direct charge on the customer making the payment. Whether merchants choose to absorb the cost or adjust prices is a separate commercial decision.
Consumers would therefore not see an automatic deduction from their UPI apps for ordinary transfers. The impact, if any, would be felt first by larger merchants processing higher-value sales. Small merchants and the bulk of daily transactions are expected to remain protected under the scenarios being discussed.
The Reserve Bank of India has indicated that it is too early to determine final cost-sharing arrangements. Officials have stressed that any future framework would need to balance the sustainability of the payments infrastructure with the goal of keeping digital payments widely accessible.
Why the Change Is Being Considered
UPI grew rapidly after the government removed merchant fees in early 2020. The zero-MDR policy, supported by incentive schemes for low-value transactions, helped drive massive adoption among both users and merchants. Monthly volumes now run into tens of billions of transactions, making UPI one of the world’s largest real-time payment systems.
Over time, however, banks and payment service providers have absorbed significant costs related to technology, security, compliance and customer support. Government incentives have covered only a portion of these expenses. As the system has matured, policymakers and industry participants have revisited the question of a sustainable revenue model that does not undermine the inclusion gains already achieved.
The current legislative step is therefore best understood as enabling future flexibility rather than announcing an immediate fee. It allows the government to respond to evolving economics of the payments ecosystem without requiring fresh primary legislation each time.
What Remains Unchanged for Now
For ordinary users, nothing changes immediately. UPI payments continue to be free. No new charge appears on transaction receipts. Merchants of all sizes still operate under the existing zero-MDR rules until and unless a specific notification is issued.
Any eventual decision would likely be phased, limited in scope, and accompanied by clear definitions of which merchants and which transaction values are affected. Public communication and consultation would be essential to avoid confusion and preserve trust in the system.
Looking Ahead
The success of UPI has rested on simplicity, reliability and the absence of visible costs for most users. Maintaining those strengths while ensuring the long-term viability of the underlying infrastructure is the central policy challenge. The proposed legal amendments create room for calibrated adjustments without dismantling the free-payment experience that has driven adoption.
Whether and when fees appear on higher-value merchant transactions will depend on further deliberation, industry consultation and formal notifications. Until then, the system continues as before. Users can keep making payments without additional charges, while policymakers retain the tools to shape a durable model for one of India’s most important digital public goods.
The conversation now shifts from whether the legal option should exist to how any future rules can protect small users and merchants while supporting the institutions that keep UPI running at national scale.
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