Centre introduces UPI charges of 0.4% on merchant transactions above Rs 2,000

Banks have been advised to ensure that the charges are not passed on to the customers, the Ministry of Finance said.

The Union government on Tuesday clarified that Unified Payments Interface transactions to merchants valued above Rs 2,000 will attract a fee of 0.4%.

“Banks have been advised to ensure that merchants do not pass Merchant discount rate charges on to customers,” the Ministry of Finance said. “Application providers are expressly prohibited from imposing platform fees or hidden charges.”

Merchant discount rate is a fee charged to businesses by banks to cover the costs of processing transactions. The rate typically ranges from 1% to 3% of the transaction value for credit card payments and can be up to 0.9% for debit card transactions.

This 0.4% fee has been capped at Rs 300 per transaction for payments of Rs 75,000 and above.

The ministry said that the new framework will have no impact on person-to-person transactions, “irrespective of the amount transferred”.

Small merchants who receive up to Rs 1 lakh per month will also continue without being liable for paying any merchant discount rate on their transactions.

Essential sectors that operate on “narrow margins” such as railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat merchant discount rate of Rs 5 per transaction.

Capital market transactions relating to mutual funds, securities, stockbrokers and dealers will incur a fee of 0.02% or Rs 300 per transaction, whichever is lower.

On Monday, the ministry had said that banks and system providers cannot charge fees on UPI transactions of up to Rs 2,000 and payments made using RuPay debit cards.

The Union Ministry of Finance issued the notification under Section 10A of the 2007 Payment and Settlement Systems Act.

In 2025-’26, transactions exceeding Rs 2,000 accounted for just 4% of person-to-merchant UPI payment, The Indian Express reported. However, these transactions represented nearly two-thirds of the total value of person-to-merchant UPI payments.

Parliament passed the 2026 Taxation and Other Laws Amendment Bill in August, allowing banks and other service providers to levy charges on payments through UPI and RuPay debit cards.

The legislation amended the 2007 Payment and Settlement Systems Act, leading to fears that merchants, who would face a Merchant Discount Rate, would pass off the cost to consumers in the future.

Written by Sara Varghese and Anamika Pathak. Edited by Neerad Pandharipande and Tanya Shrivastava.