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New Delhi: The government’s decision to retain zero charges on UPI transactions up to Rs 2,000 has kept nearly 96 per cent of merchant transactions outside any potential merchant discount rate (MDR) regime, while simultaneously opening the legal door to charges on higher-value payments.
Government data shows that only around 4 per cent of person-to-merchant (P2M) UPI transactions in 2025-26 were above Rs 2,000. Person-to-person transactions are not part of the proposed charging framework. The significance of the change, however, becomes clearer when measured by value. The roughly 4 per cent of P2M transactions above Rs 2,000 account for around two-thirds of the total value of merchant UPI payments.
The September 14 notification does not itself impose a UPI fee. Parliament’s amendment in August removed the earlier statutory restriction on charging specified digital payment modes, giving the government the power to subsequently notify a charging framework. The latest notification protects UPI transactions up to Rs 2,000 and RuPay debit-card payments, but does not prescribe an MDR rate for higher-value UPI transactions.
The change means that the government can potentially monetise the relatively small proportion of merchant transactions that account for a disproportionately large share of UPI’s value, while keeping the overwhelming majority of everyday payments outside the system. A Rs 500 grocery payment or a Rs 1,500 retail transaction would remain protected, while a higher-value merchant payment could eventually attract MDR if the government notifies such a regime.
The move comes as UPI has reached a scale that has intensified questions over who should bear the cost of maintaining the payment infrastructure. India processed about 24,162 crore UPI transactions in 2025-26, an average of roughly 66 crore transactions a day. Monthly volumes have continued to rise, with UPI recording around 23.2 billion transactions in May 2026.
RBI Governor Sanjay Malhotra had recently said that the cost of operating the payment infrastructure ultimately has to be borne by someone, either through government support or charges within the payments ecosystem. Payment-industry bodies have similarly argued that the existing zero-MDR model requires a more sustainable funding mechanism.
The decision has nevertheless acquired a political dimension because of longstanding US objections to India’s digital-payment regime. The US Trade Representative’s 2026 National Trade Estimate report identifies India’s zero-MDR policy, promotion of RuPay and restrictions affecting US electronic-payment companies’ participation in parts of the UPI ecosystem as trade concerns. Visa and Mastercard have also for years argued that the expansion of free UPI has shifted retail payments away from card networks.
The timing of the Indian policy change, amid ongoing India-US trade negotiations, has fuelled allegations that New Delhi has altered its UPI policy under pressure from Washington. There is, however, no public evidence that the US government directly instructed India to introduce MDR or that India agreed to do so as part of a trade deal.
What has changed beyond doubt is the legal architecture. The earlier framework effectively locked in the prohibition on MDR for specified payment modes. Parliament has now removed that statutory barrier, while the government has used the resulting flexibility to protect low-value UPI transactions and leave higher-value merchant payments open to a possible charge.
Sources have indicated that an MDR of between 0.3 per cent and 0.5 per cent, with around 0.4 per cent being discussed, could be considered for transactions above Rs 2,000. Such a framework could generate thousands of crores in annual revenue for banks and payment companies, although neither the rate nor the mechanism has been finalised.
The government has maintained that consumers will not be directly charged. Any MDR would formally be imposed within the merchant-payment ecosystem. The eventual economic impact on consumers, however, would depend on whether merchants absorb the cost or pass some of it on through prices.
The immediate impact on ordinary UPI users is therefore limited. The larger significance lies in the policy shift: India has moved from a system in which zero MDR was protected by law to one in which the government can potentially charge for a narrow category of high-value merchant payments. That change also gives New Delhi room to address the domestic financing problem surrounding UPI without imposing a charge on the overwhelming majority of transactions.
The question of US influence will remain politically contentious because Washington has a documented commercial grievance against the zero-MDR model and the Indian government has now removed the legal barrier that prevented MDR.