UPI charges above ₹2,000 start after Diwali: do you pay?

The fee is a merchant discount rate (MDR): a small charge the merchant's bank keeps from each qualifying payment before settling the money. It sits on the merchant's side of the transaction. The Ministry of Finance's FAQs say plainly that consumers will not be charged, merchants cannot pass the fee on, and UPI apps cannot add a platform fee to UPI payments.

The threshold is strict: a payment of exactly ₹2,000 is free, and the fee applies only above it. From ₹75,000 upwards the fee stops growing and stays at ₹300, so very large payments cost the merchant proportionately less.

• On a ₹5,000 purchase the merchant gives up ₹20; on ₹50,000 it is ₹200.
• A ₹2,00,000 payment still costs only ₹300, an effective rate of 0.15%, because of the cap.
• In the flat-fee sectors a ₹10,000 insurance premium or fuel bill costs the receiver ₹5, whatever the amount.

• All person-to-person transfers. Sending money to family or friends, splitting bills and moving money between your own accounts remain free at any permitted amount.
• Every merchant payment up to ₹2,000. According to the FAQs these make up more than 95% of UPI merchant transactions by volume, so most daily spending is untouched.
• Small vendors on the P2PM framework. Shopkeepers and street vendors receiving up to ₹1 lakh a month through a UPI QR into their own account pay nothing, even on a single payment above ₹2,000. A vendor who crosses that limit for 3 months in a row is moved to the regular merchant category. GST registration is not needed to stay in P2PM.
• UPI AutoPay. Recurring mandates for utility bills, OTT subscriptions and SIPs carry no prescribed MDR.
• No usage caps. There is no monthly quota of free transactions. The daily limits your bank sets are security limits, not charges.

A few kinds of merchant get a lower or different rate, and some payment types sit outside this framework altogether:

• Flat ₹5 sectors. Railways, telecom, insurance premiums, fuel stations and public utilities such as electricity, water and piped gas pay a flat ₹5 per payment above ₹2,000.
• Education. School, college and examination fees above ₹2,000 get a flat fee or a capped rate. The FAQs do not yet give the exact figure, so institutions should check with their bank.
• Capital markets. Payments to mutual funds, stockbrokers and securities dealers carry 0.02% of the amount, capped at ₹300, paid by the fund house or broker.
• Credit on UPI. RuPay credit cards linked to UPI and pre-approved credit lines follow credit card rules, not this framework. Those charges have always been on the merchant side too.
• Wallets. Since April 2023 NPCI has applied an interchange of up to 1.1% on wallet-funded merchant payments above ₹2,000, again borne by the merchant's side. The 2026 FAQs deal with payments from bank accounts and do not say how the two will interact, so merchants who accept wallet payments should ask their payment provider.

Because most payments are small, the effective cost to a typical merchant is well below the headline 0.4%. Take a shop with the following month of UPI collections:

• The shop pays ₹4,980 on ₹16,50,000 of collections, an effective rate of 0.3%.
• The same collections on debit cards could cost up to ₹14,850 at the 0.9% debit card cap the FAQs quote, and more on credit cards at 1.5% to 2.5%.
• The 600 everyday sales below ₹2,000 cost nothing at all.

UPI merchant payments have been free by law since 1 January 2020. In August 2026 the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, which amends Section 10A of the Payment and Settlement Systems Act, 2007 so that the government can notify which payment modes stay free instead of keeping a blanket ban on charges. The government's reasoning is that running UPI at its present scale needs a steady source of funding for infrastructure, fraud prevention and cybersecurity, which annual subsidies were never meant to provide.

The government has also proposed a dedicated fund, paid for out of the MDR, to subsidise UPI acceptance among small merchants in smaller towns, the North East, Jammu and Kashmir and Ladakh. Its detailed framework is to be finalised with the RBI within three months of the September FAQs.

1. As a consumer, nothing changes. Keep paying by UPI as usual. If a shop asks for extra money for paying by UPI, that is not allowed; pay the displayed price and raise it with the shop's bank or your UPI app if they insist.
2. Ignore forwarded messages about UPI tax. There is no GST or charge on consumers. Check only the Ministry of Finance, the RBI, NPCI or the Press Information Bureau for changes.
3. As a small vendor, check your category. If your QR pays into your own savings account and you collect up to ₹1 lakh a month, you remain free. Ask your bank to confirm.
4. As a larger merchant, plan for the cost. Estimate your share of payments above ₹2,000, confirm whether your category gets the flat ₹5 rate, and watch for NPCI's notified start date.