New Delhi , Sept 17 : India is set to introduce charges on certain Unified Payments Interface (UPI) transactions, ending a decade-long period in which the country’s widely used instant digital payment system has operated without a direct merchant transaction fee.
Under the new framework announced by the National Payments Corporation of India (NPCI), a 0.4% Merchant Discount Rate (MDR) will apply from October 15 to UPI payments of more than 2,000 rupees made to businesses, with the charge capped at 300 rupees. Person-to-person transfers will remain free.
Certain service payments, including railway tickets, fuel purchases and telecom bills, will carry a flat five-rupee charge per transaction.
The government has said merchants will not be permitted to pass the new MDR directly on to customers. However, some businesses have already begun adding small charges to larger digital payments.
The policy represents a significant change for UPI, which has become central to India’s shift towards digital payments. The platform enables customers to transfer money instantly through bank accounts and payment applications using mobile phones and QR codes.
UPI handled a record 24.51 billion transactions in the most recent month cited by the government, averaging about 791 million transactions a day. During the last financial year, it processed 241.6 billion transactions worth almost $3.3 trillion, according to official figures.
The government says the new revenue mechanism is intended to strengthen the financial sustainability of the payment ecosystem rather than function as a tax.
Revenue from the MDR is expected to be distributed among banks, payment application providers and payment aggregators. Analysts cited in the debate have estimated an annual revenue pool of around 170 billion rupees, with banks receiving about 60%, application providers 25% and aggregators 15%.
Officials say the additional revenue can help finance investments in payment infrastructure, cybersecurity and innovation, including expansion into rural and semi-urban areas.
The move has nevertheless drawn criticism from retailers and opposition politicians.
The Retailers Association of India has warned that additional costs could discourage some smaller businesses from accepting UPI, potentially undermining efforts to bring more commerce into the formal financial system.
Opposition Congress has separately alleged that the change reflects pressure from the United States, which has previously raised concerns about India’s digital payments rules and market access for American payment companies.
Congress spokesperson Jairam Ramesh has questioned whether the introduction of MDR could create greater opportunities for international card networks to compete with UPI.
The government has rejected those allegations as false.
The debate comes as UPI expands beyond India’s borders. The system is now available for merchant payments in several countries, including Singapore, the United Arab Emirates, France, Sri Lanka and Qatar.
Two major payment applications, US-owned Google Pay and PhonePe, together account for more than 80% of UPI transaction volumes, according to figures cited in the debate over the new rules.
For consumers, the immediate impact is expected to be limited because person-to-person transfers will remain free and the government has prohibited merchants from formally transferring the MDR to customers.
For businesses and payment companies, however, the new system changes the economics of processing high-value merchant transactions. Supporters argue that the revenue could provide a more sustainable funding model for India’s rapidly expanding digital payments infrastructure, while critics warn that additional costs could reduce merchant participation.
The policy therefore places the focus on a central question for India’s digital payments sector: how to finance the continued expansion of a system built around low-cost, widespread access without weakening the incentives that made UPI so widely adopted.
