UPI free for citizens, merchants may face ‘nominal’ fee: Government

The Finance Ministry’s statement comes amid a raging debate over a potential fee on UPI payments after the government introduced The Taxation and Other Laws (Amendment) Bill, 2026 in Parliament.  Passed by the Lok Sabha on Thursday, the Bill proposes changes to the Payment and Settlement Systems Act, 2007, which open the door for banks and payment system providers to charge fees on UPI and RuPay debit card payments.

The Bill led to fears that merchants which may face MDR charges in the future will pass on the cost to consumers. On Friday, the Payments Council of India (PCI) had clarified that consumers will not have to pay extra while making UPI transactions to large merchants.

In its statement, the Finance Ministry said the amendment to the taxation Bill has been misinterpreted “as a move to impose charges on ordinary users”.

Two days after the Bill was introduced, Congress leader Jairam Ramesh on Thursday said in a post on social media platform X that the cost of the MDR “will inevitably be borne by ordinary people who will now have to pay to use UPI transactions”.

Responding to his post, Finance Minister Nirmala Sitharaman had said the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI), is yet to make a decision. In its statement, the Finance Ministry said “vast majority” of UPI transactions will remain free of charge for merchants and an MDR, “if introduced, will only be threshold based and not blanketly levied to all”.

According to a poll of more than 20,000 people by social media polling company LocalCircles, only 2% of respondents said they would continue using UPI if merchants were to recover any transaction fee from customers for UPI payments of more than Rs 3,000.

Since its launch in April 2016, UPI has democratised finance in India with QR codes replacing complex bank details for money transfers. In 2025-26, there were more than 24,000 crore transactions (30% more than the previous year) worth Rs 314 lakh crores (21% more). Today, it is the world’s largest real-time payment system.

In its statement, the Finance Ministry said to expand UPI further into rural and semi-urban areas and maintain competitiveness, it must be self-sustainable and affordable. “Reliance on subsidies alone is not viable for the next wave of growth. A balanced framework is required to ensure that UPI remains robust, inclusive, and future-ready.”

For this, Jairam Ramesh had said Thursday that the Reserve Bank of India could fund the UPI ecosystem – with no charge on merchants and consumers – considering the central bank transferred Rs 2.86 lakh crore to the Centre as dividend for 2025-26.

The government has been subsidising UPI payments of up to Rs 2,000 made to only small merchants through its ‘Incentive scheme for promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M)’. The incentive offered is capped at 0.15% of the transaction value and is shared between banks, payment service providers and third-party app providers.

The Centre paid out Rs 8,730 crore under the incentive scheme from 2021-22 to 2024-25. However, this was only 11% of the cost incurred by the payment industry, according to a report by the Standing Committee on Finance.

Congress’ Jairam Ramesh had also expressed concerns in his August 6 post that the amendment follows a report by the US Trade Representative criticising UPI and RuPay “for being free and accuses them of having driven out American payment platforms like Visa and MasterCard”.

The Finance Ministry said any suggestion that “external influences may be driving policy changes” is “unfounded, completely false and misleading”.

The USTR, in its National Trade Estimate Report for 2026, had said the US had continued to raise concerns “relating to informal and formal policies with respect to electronic payments services that appear to favour Indian domestic suppliers over foreign suppliers, creating a non-level playing field”. Specifically, it noted that US electronic payment services suppliers were unable to participate in the UPI ecosystem, including credit transactions on UPI, like RuPay could.

It also mentioned the 30% market share cap, in terms of the number of UPI transactions, for third-party apps. Originally to come into force in January 2023, the implementation of this cap has been deferred multiple times and the current deadline is December 2026. This cap is crucial as Walmart-owned PhonePe and Google Pay together handle almost 80% of all UPI transactions.

Payments industry experts have said in recent days that small merchants such as kirana stores would not have to pay any MDR fee.

In 2025-26, only 4% of person-to-merchant (P2M) UPI payments were greater than Rs 2,000. However, these 4% of transactions made up around two-thirds of UPI payments by value.

The Taxation and Other Laws (Amendment) Bill, 2026, seeks to amend Section 10A of the Payment and Settlement Systems Act, 2007, such that the exemption from any bank charges to electronic payments under section 269SU of the Income-tax Act, 1961 is removed.

Section 269SU applies to every person having an annual business turnover of over Rs 50 crore. It is this threshold that may be used to determine which merchants face an MDR, said payments industry executives. Some experts, however, said it could be lower at Rs 1 crore-Rs 1.5 crore.

Section 10A of the Payment and Settlement Systems Act, 2007 says no bank or system provider can impose any charge on payments made through electronic modes prescribed under Section 269SU. These modes are RuPay debit cards, BHIM-UPI, and UPI-QR code.