The Central Government has formally notified a new regulatory framework under which banks and system providers cannot impose direct or indirect charges on Unified Payments Interface (UPI) transactions up to ₹2,000 or on payments made through RuPay-powered debit cards. The notification issued by the Ministry of Finance on September 14, 2026, under Section 10A of the Payment and Settlement Systems Act, 2007, marks an important development in the legal and economic architecture of India’s digital payments system.
At first sight, the notification may appear to be a straightforward consumer-protection measure ensuring that small-value digital payments remain free. Its legal significance, however, is considerably broader. The notification is also the first concrete exercise of the Central Government’s newly clarified power to determine which electronic payment modes and transaction categories remain protected from charges. In practical terms, it preserves the no-charge regime for UPI transactions up to ₹2,000 while leaving open the regulatory possibility of merchant charges on higher-value UPI transactions. The development therefore represents not merely a continuation of India’s free-digital-payment policy, but a transition from a blanket statutory protection towards a threshold-based regulatory model.
The legal foundation lies in Section 10A of the Payment and Settlement Systems Act, 2007. The provision empowers the Central Government to specify electronic modes of payment on which banks and system providers cannot impose charges upon the person making or receiving the payment. The September 14 notification exercises that statutory power by expressly identifying two categories: RuPay-powered debit cards and UPI transactions up to ₹2,000. It further provides that no bank or system provider may impose any charge, whether directly or indirectly, upon the payer or recipient using those specified modes.
The expression “directly or indirectly” assumes particular importance. The regulatory objective is not merely to prevent a bank from adding a visible “UPI transaction fee” to a customer’s statement. The language is sufficiently broad to prevent charges from being structured through indirect mechanisms against the persons making or receiving protected payments. The provision therefore operates as a substantive statutory protection rather than simply a direction concerning how banks should describe transaction costs.
The notification must also be understood against the background of the earlier legal regime. Section 10A had historically operated alongside Section 269SU of the Income-tax Act, under which specified electronic modes of payment were prescribed by the Central Board of Direct Taxes. UPI and RuPay debit cards had been notified as prescribed electronic modes in 2019. The statutory framework consequently supported the government’s zero-charge policy for these digital payment channels.
The legal landscape changed with the 2026 amendment to the Payment and Settlement Systems Act. Instead of relying upon the earlier cross-reference to the Income-tax Act framework, the amended provision enabled the Central Government to itself specify electronic modes of payment for the purposes of protection under Section 10A. The amendment therefore created greater flexibility for the executive to distinguish between different forms and values of electronic transactions rather than treating every digital payment identically.
The September 14 notification is the first significant manifestation of that flexibility. Instead of declaring every UPI transaction permanently immune from charges, the Government has chosen to protect UPI payments only up to ₹2,000. RuPay-powered debit card transactions, however, have been protected without an equivalent monetary ceiling. This difference is legally and economically significant because it demonstrates that the Government is no longer treating every electronic payment channel or every UPI transaction as necessarily requiring identical regulatory treatment.
The immediate consequence for ordinary users is reassuring. A person making a UPI payment of ₹100, ₹500, ₹1,500 or ₹2,000 will remain protected from charges under the notification. Similarly, the recipient cannot be subjected to such charges merely because the payment was received through the protected UPI category. Person-to-person transactions are also not being converted into a chargeable category merely because the statutory framework now permits a threshold-based approach. The Government had already clarified that consumers would not be charged for making UPI payments and that P2P transactions would continue to remain free.
The more consequential question concerns transactions above ₹2,000. The notification does not itself impose a fee on such payments. Nor does it prescribe a particular Merchant Discount Rate (MDR). What it does is omit UPI transactions above ₹2,000 from the specific statutory protection created through this notification. That distinction is critical. The removal of statutory immunity from charges is not equivalent to the immediate imposition of a charge.
In other words, ₹2,000 is presently a regulatory threshold, not a mandatory transaction fee threshold.
The distinction becomes clearer when MDR is understood. Merchant Discount Rate is essentially the fee associated with processing a merchant transaction through a payment network. Under a conventional card-payment model, MDR compensates various participants in the payment ecosystem, including banks, payment networks and other intermediaries involved in processing and settlement. UPI, by contrast, has operated for several years under a zero-MDR model for merchant transactions, with the Government using financial incentives to compensate ecosystem participants for certain categories of transactions.
The continuation of this model has increasingly raised questions about the long-term financial sustainability of the UPI ecosystem. UPI has grown from a digital-payment innovation into core national infrastructure. NPCI data shows that UPI processed more than 24.5 billion transactions in August 2026, with transaction value approaching ₹29.82 lakh crore.
The scale itself explains the policy dilemma. Maintaining zero charges supports adoption, particularly among small merchants and consumers, but the payment ecosystem still incurs costs relating to banking infrastructure, cybersecurity, fraud prevention, technology upgrades, settlement and system resilience. The Government has therefore increasingly confronted the question of whether a system of such enormous scale can indefinitely rely upon public incentives rather than developing a sustainable commercial model.
The Government’s policy response has so far attempted to separate the question of consumer access from the question of ecosystem financing. In August 2026, the Finance Ministry stated that consumers would not face transaction charges, P2P payments would remain free and any future MDR would be confined to a limited category of merchant transactions above a specified threshold and would be nominal. It also emphasised that the legislative amendment was intended to create an enabling framework rather than automatically impose MDR.
That distinction is central to understanding the present notification. The Government is effectively saying that digital payments can remain free at the point of use for ordinary citizens while the underlying payment infrastructure may eventually be financed differently for selected merchant transactions.
This represents a significant shift in regulatory philosophy. The earlier approach was largely one of universal protection: UPI and RuPay transactions were placed within a statutory framework that prevented charges. The emerging approach is more calibrated. Small-value UPI payments receive express protection because they are particularly important for street vendors, small businesses, local commerce and everyday retail transactions. Larger merchant payments, on the other hand, may have greater capacity to absorb a nominal transaction cost without undermining the fundamental objective of financial inclusion.
The ₹2,000 threshold is therefore not arbitrary merely because it is a round figure. It reflects an attempt to identify the segment in which transaction charges could have the greatest effect on adoption and inclusion. Government incentive schemes have themselves historically treated UPI transactions up to ₹2,000 as a distinct low-value category. Under the existing incentive architecture, small merchants have been eligible for incentives linked to transactions up to that threshold, while larger-value transactions have been treated differently.
The legal question that now emerges is whether the Government can create differentiated treatment between transactions solely on the basis of value. From a constitutional perspective, the answer would ordinarily depend upon whether the classification has an intelligible differentia and a rational relationship with the object sought to be achieved. A threshold designed to protect low-value payments and facilitate financial inclusion would have a plausible policy rationale. The more difficult question would arise if the distinction were later used to impose disproportionate or discriminatory charges on a particular category of merchants without adequate justification.
The notification also illustrates the importance of delegated legislative power. Parliament has established the statutory framework through the Payment and Settlement Systems Act, while the Central Government has been entrusted with specifying the electronic modes entitled to protection. The executive notification therefore operates within a statutory delegation rather than independently creating a payment regime without legislative authority.
This distinction matters because financial regulation increasingly operates through a combination of primary legislation, delegated legislation, regulatory directions and technical frameworks issued by institutions such as the Reserve Bank of India and NPCI. The legal validity of the resulting framework depends upon each layer remaining within the authority granted by the layer above it. A notification cannot enlarge the statutory power under which it is issued, nor can an administrative direction contradict the parent legislation.
The notification also leaves an important institutional question unresolved: who ultimately determines the rate and structure of any MDR that may emerge for higher-value UPI merchant transactions? The Government had indicated that the UPI and Services Steering Committee headed by NPCI would play a role in determining any future MDR framework. Thus, the September 14 notification should be viewed as the opening of a regulatory door rather than the final announcement of what merchants will actually pay.
This is where the policy debate becomes more complex. A zero-MDR system has been one of the reasons UPI became exceptionally attractive to small merchants. Introducing charges, even nominal ones, could alter merchant behaviour. Businesses might attempt to pass costs to customers, encourage cash payments, differentiate between payment methods or impose informal minimum transaction values. Such practices could undermine some of the convenience and inclusiveness that UPI has created.
For this reason, the Government’s decision to protect transactions up to ₹2,000 has a broader economic logic. The small-value transaction is precisely where an additional payment charge can become disproportionately significant. A ₹5 fee on a ₹100 transaction is economically very different from the same fee on a ₹10,000 transaction. Even a small percentage-based MDR could have a greater behavioural effect at the lower end of the payment spectrum.
The notification therefore reflects a form of regulatory cross-subsidisation logic: preserve the zero-cost character of everyday digital payments while potentially allowing the larger commercial ecosystem to contribute towards the infrastructure that makes those payments possible.
There is also a larger competition-policy dimension. UPI is no longer merely a payment product competing with cards and cash; it has become an essential component of India’s digital public infrastructure. Any change in its pricing structure can influence competition between banks, third-party application providers, fintech companies and alternative payment networks. A carefully designed MDR regime could help create a sustainable ecosystem in which payment providers have greater economic incentives to invest in technology and security. A poorly designed regime, however, could increase concentration or disproportionately burden smaller participants.
The Government’s own justification has centred on sustainability. It has pointed to the rapid growth in transaction volumes, the need for continuous technological upgrades, cybersecurity and fraud prevention, and the importance of ensuring that UPI remains resilient as its use expands. In July 2026 alone, UPI processed 2,366 crore transactions worth approximately ₹29.9 lakh crore, according to the Finance Ministry.
The scale also makes resilience a legal and public-interest concern. A failure in a small private payment platform may affect a limited number of customers. A systemic disruption in UPI can affect commerce across the country. Once a private-sector payment system becomes essential national infrastructure, the regulatory concern shifts from merely promoting innovation to ensuring continuity, cybersecurity, accountability and financial sustainability.
The present framework should therefore not be seen merely as a question of whether consumers will have to pay for UPI. The more fundamental policy question is who should bear the cost of maintaining India’s digital payment infrastructure. Should it be the taxpayer through continuing government incentives? Should banks and payment providers absorb the cost as part of the digital ecosystem? Should large merchants contribute through MDR? Or should some combination of these mechanisms be adopted?
The Government appears to be moving towards the last option.
There is also a useful legal distinction between a statutory prohibition and a government subsidy. A statutory prohibition under Section 10A determines what banks and system providers are legally permitted to charge. A government incentive, by contrast, compensates participants for operating within a particular pricing structure. The two mechanisms perform different legal functions. The present policy appears to be moving towards a model in which statutory protection remains for small-value transactions while government support and commercial revenue mechanisms are calibrated around the broader ecosystem.
That transition will require careful regulatory supervision. If charges are eventually introduced for larger-value UPI merchant transactions, the Government and payment regulators will need to ensure transparency regarding who bears the charge, how it is calculated, whether merchants can pass it on to consumers, and whether the pricing structure creates distortions between UPI and other payment instruments.
Another significant aspect is that the notification protects RuPay debit cards without imposing the ₹2,000 ceiling applicable to UPI. This indicates that the Government is also pursuing a strategic objective concerning India’s domestic card-payment network. RuPay competes with international card networks and forms part of India’s broader digital financial infrastructure. Continued protection for RuPay transactions therefore has implications extending beyond consumer charges into the promotion of a domestic payments ecosystem.
The policy has already been backed by substantial public financial support. According to the Government’s parliamentary response, incentive support of approximately ₹8,730 crore had been extended to sustain UPI services and the associated ecosystem between financial years 2021-22 and 2024-25. The Union Budget for 2026-27 subsequently provided ₹2,000 crore for incentives connected with UPI and RuPay transactions.
The emerging regulatory model consequently raises a question of fiscal sustainability as much as payment regulation. Government subsidies were an effective instrument for rapidly scaling UPI. But once UPI has become one of the world’s largest real-time payment systems, continuing to finance every transaction through public funds may become increasingly difficult to justify as the sole long-term model.
From a legal-policy perspective, the September notification can therefore be viewed as an attempt to distinguish between access and sustainability. Access remains protected for ordinary users. Sustainability is being addressed through a more flexible regulatory architecture that can potentially permit revenue generation at the merchant end for selected categories of transactions.
The Government has also been careful to communicate that the present framework does not mean consumers will suddenly be charged every time they make a UPI payment above ₹2,000. The statutory notification merely does not extend the specific Section 10A prohibition to such transactions. Any actual MDR structure would require the subsequent regulatory framework to specify its scope, rate and operation.
This distinction will be crucial in public discourse. Saying that “UPI charges have been imposed” would presently go beyond what the notification itself does. The more legally accurate description is that the Government has protected UPI transactions up to ₹2,000 from charges while creating the statutory space for charges on transactions above that threshold.
The significance of the development ultimately lies in this calibrated shift. India is not abandoning free digital payments; it is beginning to define what “free” means in law. The State is expressly guaranteeing a cost-free zone for small-value UPI transactions while retaining flexibility over the commercial structure applicable beyond that zone.
That approach is likely to become increasingly important as digital public infrastructure matures. During the early stage of technological adoption, the priority is usually expansion: remove barriers, subsidise participation and encourage users to migrate from cash. At maturity, however, the regulatory question changes. The system must become economically sustainable without sacrificing accessibility, competition or consumer protection. The September 14 notification represents that second phase.
Its ultimate success will depend not upon the ₹2,000 threshold alone, but upon what follows. If future MDR is modest, transparent, confined primarily to large merchant transactions and structured so that ordinary consumers do not bear hidden costs, the new model could provide UPI with a sustainable economic foundation without undermining financial inclusion. If charges are allowed to become excessive or are indirectly passed down to consumers and small businesses, the very affordability that made UPI transformative could be weakened.
The legal architecture therefore establishes a delicate equilibrium. Section 10A protects the citizen and merchant at the low-value end; the emerging MDR framework may allow the payment ecosystem to recover part of its costs at the higher-value end; and the regulatory institutions must ensure that neither objective overwhelms the other.
The larger constitutional and regulatory lesson is equally important. Digital public infrastructure cannot remain permanently dependent upon an assumption that essential services must always be free simply because users have become accustomed to paying nothing at the point of transaction. At the same time, the State cannot treat a national payment network merely as an ordinary commercial service once millions of citizens and businesses depend upon it every day. The appropriate model lies somewhere between public infrastructure and commercial sustainability.
The Centre’s latest notification is therefore less a final answer than the beginning of a new chapter in India’s UPI policy. It protects the small transaction, preserves consumer access and simultaneously opens the legal pathway towards a more sustainable merchant-side payment economy. The real test will now be whether the regulatory regime that follows can monetise scale without monetising access and whether India’s most successful digital payment innovation can remain both economically sustainable and genuinely inclusive.
