Will UPI Be Charged? What the New Law Actually Says

UPI users will continue to make free person-to-person transfers and consumer payments, while UPI charges India concerns stem from a proposed law that only enables a future merchant fee on limited business payments above a threshold. Any MDR would be paid by merchants, not customers.

You will not be charged for UPI. The Ministry of Finance said so in writing on 8 August 2026: consumers pay no transaction charges, and every person-to-person transfer stays free. What the new law actually does is create the legal power to allow a merchant fee later, on a limited set of business payments above a threshold, paid by the merchant and not by you.

The confusion is understandable, because two different things got mixed together in the same week: a clause in a tax Bill, and a rumour that UPI was about to start charging ordinary users. Only one of those is real.

What the law changed

The Taxation and Other Laws (Amendment) Bill, 2026 proposes to amend Section 10A of the Payment and Settlement Systems Act, 2007.

Section 10A is the provision that currently bars a charge on certain prescribed electronic payment modes. Amending it does not impose a fee. It removes the blanket statutory bar and hands the decision to a body: Parliament passed the Bill on 10 August 2026, so that power now exists. The UPI and Services Steering Committee, headed by NPCI, decides whether there is an MDR at all, and if so what it looks like. It has notified none.

That is the whole mechanism. An enabling provision, not a levy. The distinction matters because a great deal of the panic assumed the Bill itself switched on charges the day it passed.

What happened in Parliament

The Bill was introduced on 4 August 2026, passed the Lok Sabha on 6 August and was cleared by the Rajya Sabha on 10 August, which returned it to the Lok Sabha as a Money Bill. Replying to the debate, Finance Minister Nirmala Sitharaman said the UPI amendment is only an enabling provision that does not itself impose any tax or transaction charge, and assured the House that consumers and small merchants will not pay MDR on UPI transactions.

Two details from the debate are worth keeping. The assurance covered small merchants and not only consumers, which is broader than the 8 August statement. And the same enabling power extends to RuPay card transactions alongside UPI. The Bill itself is wider than payments: it also touches foreign investment, rough diamond trading, and the taxation of REITs and InvITs.

What MDR is, and who pays it

Merchant Discount Rate is the fee a business pays its bank or payment provider for accepting a digital payment. You already pay it indirectly every time you tap a credit card at a shop — the merchant is charged a percentage, typically well over 1%, and prices absorb it.

MDR is charged to the merchant, not added to the customer’s bill at checkout. That is true of cards today and it is what is proposed for UPI.

What the government has committed to, in the 8 August statement:

• No charges for users. Consumers making payments will not face transaction charges.
• P2P stays free. Sending money to a friend, family member or your own second account is untouched.
• Threshold-based, not blanket. Any MDR would apply only to a limited set of merchant transactions above a certain value, at a nominal rate “far lower than debit or credit card MDRs”.
• Most merchants unaffected. The vast majority of merchant transactions on UPI are to remain free of charge.

Press reporting through late July and early August put the figures being considered at around 0.25% to 0.4% on business-directed payments above ₹2,000. Treat those as reported proposals rather than settled policy. No rate and no threshold has been notified, and under the amendment the committee has not yet been empowered to set one.

Why the government wants the option at all

UPI has been free for merchants and citizens since January 2020, funded by the exchequer and by the payment companies themselves. The scale it now runs at is the reason that model is under strain.

In July 2026 alone, UPI processed 2,366 crore transactions worth ₹29.9 lakh crore. It is the largest real-time payment system in the world and is now live in 11 foreign countries.

A system at that volume needs continuous spending on cybersecurity, fraud detection and infrastructure, and the stated argument is that subsidy alone will not fund the next wave of growth into rural and semi-urban India. Whether you find that persuasive is a fair question. What it is not is a plan to bill you ₹2 for your chai.

The charge that already exists, and that most people miss

Here is the part that gets left out of the argument entirely.

Since 2023 there has been an interchange fee of up to 1.1% on UPI transactions above ₹2,000 made through prepaid payment instruments — that is, when you pay a merchant from a wallet balance loaded onto a UPI app, rather than directly from your bank account. NPCI also permits a wallet-loading service charge on recharges above ₹2,000.

That fee is borne by the merchant. It has been live for three years. It caused no crisis, nobody was charged at checkout, and almost nobody noticed — which is a reasonable guide to what a nominal merchant-side MDR would actually feel like in practice.

What this means for you

If you run a business large enough to be in scope, the practical step is not to change payment methods. It is to check what your payment aggregator’s contract says about passing on future interchange or MDR changes, because that clause is where the cost will actually land.

How to tell the next rumour from the next real change

This will happen again, so it is worth having a rule.

1. A charge on UPI has to be notified. It cannot arrive by WhatsApp forward. Check PIB, the Ministry of Finance, RBI or NPCI before believing it.
2. Ask who pays. “MDR” means the merchant. If a message says money will be cut from your account per transaction, that is the tell that it is wrong.
3. Ask whether it is a power or a rate. An enabling amendment and a notified rate are different events, often years apart.
4. Watch the threshold. Every serious proposal so far has been threshold-based. “UPI will now be charged” with no threshold attached is not describing any actual proposal.

The government’s own closing line was blunt: rely on official information from the Ministry of Finance, the RBI and NPCI, and do not forward unverified messages.

Common questions

Will I be charged for UPI payments?
No. The Ministry of Finance stated on 8 August 2026 that consumers making payments will not face any transaction charges.

Is UPI free for person-to-person transfers?
Yes, and this was stated explicitly. All P2P transactions continue to be free of charge.

What is MDR on UPI?
Merchant Discount Rate: a fee a business pays for accepting a digital payment. It is charged to the merchant, not to the customer.

Will UPI charges apply above ₹2,000?
Reported proposals discussed a threshold of ₹2,000 for merchant payments at roughly 0.25% to 0.4%. Nothing has been notified, and any such fee would be paid by the merchant.

What did the Payment and Settlement Systems Act amendment do?
It amended Section 10A to create an enabling power, and Parliament passed it on 10 August 2026. It does not itself impose any charge. The NPCI-headed UPI and Services Steering Committee decides on MDR, if any, and has notified none.

Are small shopkeepers going to be charged?
Not on any proposal discussed so far. The government said the vast majority of merchant transactions will remain free and that any MDR would be threshold-based.

Is there already any fee on UPI?
Yes, one that predates this debate: an interchange fee of up to 1.1% on payments above ₹2,000 made through prepaid instruments such as wallets. It is borne by the merchant, not the customer.

The short version

Nothing about your UPI payments changes. The amendment to Section 10A of the Payment and Settlement Systems Act creates a power, not a fee, and the decision on whether any merchant fee ever exists sits with an NPCI-headed committee once Parliament passes the Bill. Person-to-person transfers are explicitly protected, consumers are explicitly excluded, and the only fee actually live today is a merchant-side interchange charge on wallet payments that has been running quietly since 2023. When the next version of this rumour arrives, check who is said to be paying — if the answer is “you”, it is wrong.