Banks cannot impose charges on UPI payments of up to Rs 2,000, govt says
The Department of Financial Services under the Ministry of Finance notified that no bank or payment system provider may impose any direct or indirect charge on Unified Payments Interface (UPI) transactions up to Rs 2,000, and on RuPay debit card payments below the same threshold.
The notification was issued under Section 10A of the Payment and Settlement Systems Act, 2007, exercising a power to specify which electronic payment modes remain free of charge.
The clarification follows a recent amendment to Section 10A that replaced the earlier blanket statutory ban on merchant discount rate (MDR) charges with an executive power for the central government to notify exempt payment modes by order.
Person-to-person UPI transfers and the vast majority of everyday consumer merchant payments continue to remain free; the change opens the door to a possible "nominal" MDR only on a limited set of higher-value merchant transactions outside the notified exemption.
Merchant Discount Rate (MDR) and Zero-MDR Policy
MDR is the fee a merchant's bank charges the merchant for accepting digital payments, typically shared between the issuing bank, acquiring bank, and payment network. India adopted a "zero-MDR" policy for UPI and RuPay debit card transactions effective January 1, 2020, to encourage adoption of low-cost digital payment rails, reimbursing payment ecosystem players instead through a government incentive scheme routed via the Ministry of Electronics and IT.
Key Details
- Zero-MDR for UPI/RuPay debit was first mandated through a 2019 amendment inserting Section 10A into the Payment and Settlement Systems Act, 2007, effective January 1, 2020.
- The blanket zero-MDR mandate was itself amended in 2026 (via the Taxation and Other Laws (Amendment) Bill, 2026, introduced in the Lok Sabha), replacing the automatic ban with a system where the central government notifies, by executive order, which payment modes stay exempt from MDR.
- The government continues to fund a UPI incentive scheme for banks to offset the zero-MDR revenue gap on small-value transactions, disbursed annually through the Union Budget.
The September 2026 notification is the first exercise of the government's new post-amendment power under Section 10A — it uses the amended, discretionary framework to keep small transactions (up to Rs 2,000) free, rather than relying on the old automatic statutory ban.
Payment and Settlement Systems Act, 2007
This is the principal law governing the regulation and oversight of payment and settlement systems in India, administering authority vested in the Reserve Bank of India (RBI). It defines "payment system" broadly to cover systems enabling payment between a payer and a beneficiary, and empowers RBI to authorise, regulate, and inspect such systems, including UPI (operated by NPCI, a not-for-profit entity set up under Section 25 of the erstwhile Companies Act, 1956, now Section 8 of the Companies Act, 2013).
The Rs 2,000 free-payment notification is a direct exercise of the Act's amended Section 10A, illustrating how a single statutory provision can be used to calibrate digital-payment pricing policy at the executive level without fresh primary legislation.
Digital Payments Ecosystem and UPI
UPI is a real-time, mobile-based interbank payment system developed by NPCI that allows instant fund transfers between bank accounts using a virtual payment address, without needing full bank account details. It underpins India's status as one of the largest real-time digital payment markets globally and is a flagship component of the Digital India and financial inclusion agenda.
Key Details
- UPI was launched by NPCI in April 2016 under the aegis of the RBI and the Ministry of Finance.
- RuPay is India's domestic card payment network, also operated by NPCI, launched in 2012 as an alternative to international card networks like Visa and Mastercard.
- Both UPI and RuPay are central to India's push for indigenous, low-cost digital payment infrastructure and are exported internationally through bilateral agreements (e.g., with UAE, Singapore, France, Sri Lanka).
Keeping small-value UPI and RuPay transactions free of charge is intended to preserve mass adoption of these two flagship domestic payment instruments, especially among small merchants and low-value consumer transactions.
- Threshold below which UPI and RuPay debit card transactions remain free of any charge: Rs 2,000
- Legal basis for the notification: Section 10A, Payment and Settlement Systems Act, 2007
- Zero-MDR policy for UPI/RuPay debit originally effective from: January 1, 2020
- Amending legislation enabling the new discretionary exemption framework: Taxation and Other Laws (Amendment) Bill, 2026
- Regulatory authority for payment systems in India: Reserve Bank of India (RBI)
- Payment system operator for UPI and RuPay: National Payments Corporation of India (NPCI)