UPI stays free for users, select merchant payments may face fees later: Govt

New Delhi: UPI users will continue to make payments without transaction charges, but the government has said a nominal Merchant Discount Rate (MDR) could be introduced for a limited category of merchant transactions above a specified threshold.

The government on Saturday clarified that UPI will remain free for users, amid concerns that recent changes to the payment framework could lead to charges for digital transactions.

The Ministry of Finance said Person-to-Person (P2P) UPI transactions will remain completely free. It also said the vast majority of merchant transactions will continue to carry no charges.

However, the government has left the door open for a nominal Merchant Discount Rate (MDR) on a limited set of merchant transactions above a specified threshold.

Who could face UPI charges?

If MDR is introduced, it will not apply to all UPI payments.

• The government said the proposed charges would be:
• Limited to certain merchant transactions.
• Applicable only above a specified threshold.
• Nominal in nature.
• Significantly lower than MDR rates applicable to debit and credit card payments.
• Small merchants will not be charged under the proposed framework, according to the government's clarification.

The government has not yet imposed a blanket MDR on UPI transactions. The final decision on whether an MDR should be introduced will be taken under the framework provided by the amended law.

Why is the government changing the rules?

The clarification follows the Lok Sabha's passage of the Taxation and Other Laws (Amendment) Bill, 2026, which includes an amendment to the Payment and Settlement Systems Act, 2007.

The amendment provides an enabling framework for the government to permit charges on UPI and other notified electronic payment modes.

The government said the move is intended to support the long-term sustainability of India's digital payments infrastructure.

UPI has grown rapidly in transaction volumes, increasing the need for continued investment in cybersecurity, fraud prevention, infrastructure and technological upgrades.

The government also argued that relying solely on subsidies to support the UPI ecosystem may not be sustainable as digital payments expand further.

Will customers have to pay?

For now, no.

The government has specifically said that consumers will not be charged for using UPI and that P2P transactions will remain free.

The key uncertainty concerns whether merchants in a limited category will eventually have to pay MDR.

Congress leader Jairam Ramesh, however, has questioned the government's assurances. He argued that although MDR is formally charged to merchants, businesses could potentially pass those costs on to consumers through higher prices or different pricing structures.

What happens next?

The amended law creates the legal framework for a possible MDR, but it does not mean that every UPI transaction will automatically attract a fee.

According to the government's clarification, the UPI and Services Steering Committee headed by NPCI will decide on the MDR, if any, once the legislative changes take effect.

This means the exact transactions that could attract a charge, the threshold and the rate are still subject to a future decision.

UPI's free model remains intact for now

The government has stressed that its intention is not to make UPI a paid service for ordinary users.

The proposed framework instead seeks to create a potential revenue mechanism for selected merchant transactions while retaining free access for consumers and most merchants.

The government also rejected claims that external pressure was behind the policy change, describing such reports as “unfounded, completely false and misleading”.

It said UPI was launched as an Indian innovation and has remained free for citizens and merchants since January 2020.

What this means for UPI users

For ordinary users making payments to friends, family or merchants, there is no immediate change in UPI charges.

P2P payments will remain free, while most merchant payments will also continue without an MDR.

The potential change concerns a limited category of higher-value merchant transactions, where a nominal MDR could be introduced in the future.

The final structure will depend on decisions taken after the amended legal framework comes into effect.