India’s UPI Adds 0.4% Merchant Fee on Payments Above ₹2,000
India’s UPI adds a 0.4% merchant fee above ₹2,000 from October 15, while consumers and small sellers stay exempt as NPCI funds network costs and security.
Summary
On September 15, 2026, the National Payments Corporation of India said UPI will charge merchants 0.4% on certain payments above ₹2,000, about $21, from October 15, ending the merchant fee holiday introduced in January 2020. Consumers remain free, merchants cannot pass on fees, payments up to ₹2,000 remain merchant-free, and sellers receiving no more than ₹100,000, about $1,041, monthly are exempt. The fee tops out at ₹300, about $3, for payments of at least ₹75,000, around $783. Railways, telecom, insurance and fuel pay ₹5, about 5 cents, above ₹2,000. Capital market transactions pay 0.02%, capped at ₹300. Credit cards charge 1.5% to 2.5%, while debit fees are capped at 0.9%.
India’s August payments law amendment enabled the change, and a September 14 notification barred banks from charging on UPI payments up to ₹2,000. UPI processed 24.51 billion transactions worth ₹29.9 trillion, about $312 billion, in August, and more than 95% of merchant volume is ₹2,000 or less. NPCI estimates annual server, fraud prevention and support costs at ₹200 billion, or $2.1 billion, after years of government subsidies, but did not explain its calculation, forecast revenue or detail distribution. Fees will finance infrastructure, cybersecurity, fraud prevention and customer service, plus a smaller city and rural adoption fund whose terms NPCI and the Reserve Bank of India will set within three months.
Paytm, Pine Labs, IPO-bound PhonePe and Razorpay could gain ecosystem revenue. Former chief economic adviser Krishnamurthy Subramanian argues UPI’s cash reduction, business formalization and financial access benefits make charging’s social opportunity cost important. Currency circulation is still growing at double-digit rates despite cash’s declining transaction share. The test is whether thin margin merchants absorb costs or steer larger purchases elsewhere.
Positives
- More than 95% of UPI merchant transactions by volume will remain outside the new fee regime.
- Consumers, merchants receiving up to ₹100,000 monthly and all payments up to ₹2,000 remain exempt.
- The 0.4% UPI rate is below credit card fees of 1.5% to 2.5% and the 0.9% debit cap.
- ₹200 billion in estimated annual operating costs could gain sustainable support through merchant fee revenue.
- Paytm, Pine Labs, PhonePe and Razorpay could receive revenue distributed across the UPI ecosystem.
- Part of the fees will support digital payment infrastructure and merchant adoption in smaller cities and rural areas.
Risks & concerns
- Merchants accepting payments above ₹2,000 face a cost that has not existed since January 2020.
- Thin margin businesses may steer customers toward other payment methods for larger purchases.
- NPCI has not explained its ₹200 billion cost estimate, projected fee revenue or distribution formula.
- Double-digit growth in currency circulation suggests charging UPI could complicate efforts to reduce cash dependence.
- Merchants cannot pass the charge directly to customers and must absorb it within listed prices.