Govt. bars bank charges on payments up to ₹2,000 via UPI, RuPay-powered debit cards
The Central Government notified changes under the Payment and Settlement Systems Act, 2007, barring banks and payment system providers from levying any charge on UPI transactions up to ₹2,000 and on payments made using RuPay debit cards
The notification invokes Section 10A of the Act, under which the Central Government can prohibit system providers and banks from imposing charges on specified categories of digital payment instruments
Neither customers nor merchants can be charged for eligible UPI transactions up to the ₹2,000 threshold or for RuPay debit card payments of any value
The move formalises and reiterates the zero-Merchant Discount Rate (MDR) regime that has applied to these instruments since 2020, amid recurring industry demands to reintroduce MDR on larger digital payments
Payment and Settlement Systems Act, 2007 — Section 10A
The Payment and Settlement Systems Act, 2007 (Act 51 of 2007) is the principal legislation regulating and supervising payment systems in India, with the Reserve Bank of India (RBI) designated as the regulator. Section 10A empowers the Central Government to prohibit banks and payment system providers from imposing, directly or indirectly, any charge on persons making or receiving payments through notified instruments.
The government's bar on bank charges is a direct exercise of the Section 10A power, not a new standalone law — it formally notifies the categories and thresholds to which the zero-charge mandate applies.
Merchant Discount Rate (MDR) and the "Zero-MDR" Policy
MDR is the fee a merchant pays to their bank/payment aggregator for accepting a digital payment, historically shared among the issuing bank, acquiring bank, and network operator. Prior to 2020, RBI permitted MDR of 0.40%-0.90% on debit card transactions and up to 0.30% (capped at ₹100) on UPI person-to-merchant (P2M) transactions. Since January 2020, MDR has been set to zero on RuPay debit cards and BHIM-UPI transactions to spur digital-payment adoption.
Key Details
- To compensate the payments ecosystem for lost MDR revenue, the government runs a Cabinet-approved "Incentive Scheme for Promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M)," with budgetary allocations made annually (this scheme is separate from MDR itself)
- Zero MDR has been credited with UPI's rapid scale-up but has drawn periodic pushback from banks and payment aggregators seeking a reasonable MDR on higher-value transactions to sustain infrastructure costs
- The ₹2,000 threshold for UPI (and no cap for RuPay debit cards) leaves room for a differentiated MDR treatment on larger UPI transactions, an area of ongoing policy debate
This notification reaffirms the zero-MDR architecture that has underpinned UPI's growth since 2020, codifying it explicitly rather than leaving it to circulars, at a time when the ecosystem's cost-recovery model has been under scrutiny.
National Payments Corporation of India (NPCI) and UPI/RuPay as Payment Systems
NPCI is the umbrella organisation for retail payments and settlement systems in India, incorporated under Section 8 of the Companies Act, 2013 (not-for-profit) and set up by RBI and the Indian Banks' Association. It owns and operates UPI (Unified Payments Interface, launched 2016) and RuPay (India's domestic card payment network, launched 2012).
Key Details
- UPI enables real-time, account-to-account fund transfers via a single mobile application/identifier, regulated as a payment system authorised by RBI under the PSS Act, 2007
- RuPay was created to reduce dependence on foreign card networks (Visa, Mastercard) and lower transaction costs domestically
- Both UPI and RuPay are central instruments of the government's Digital India and financial inclusion agenda, including their promotion under Direct Benefit Transfer and Jan Dhan-linked RuPay debit cards
The charge-free mandate directly affects the two payment rails — UPI and RuPay — that NPCI operates, reinforcing their role as the low-cost backbone of India's digital payments push.
- Legal basis: Section 10A, Payment and Settlement Systems Act, 2007 (Act 51 of 2007)
- Zero-MDR in force since: January 1, 2020
- UPI transaction threshold covered by the bar: up to ₹2,000
- RuPay debit card payments covered: all transaction values
- Pre-2020 permissible MDR: 0.40%-0.90% (debit cards); up to 0.30%, capped at ₹100 (UPI P2M)
- UPI launched: 2016; RuPay launched: 2012, both operated by NPCI
- Parallel provision: Section 269SU, Income-tax Act, 1961 (mandatory digital payment acceptance for businesses above ₹50 crore turnover)