UPI Users Face 0.4% Fee on Transactions Above ₹2,000 as NPCI Begins Consultations With Banks

Unified Payments Interface (UPI) users making digital payments above ₹2,000 will soon face a 0.4% transaction charge under a proposed regulatory framework initiated by the National Payments Corporation of India (NPCI) and the Reserve Bank of India (RBI).

The development follows recent legislative changes to the Payment and Settlement Systems Act, which paved the way to reintroduce a fee structure for high-value commercial payments while explicitly exempting small-ticket transfers up to ₹2,000. While routine everyday spending will remain completely free, higher-value merchant transactions will transition into a monetised model aimed at supporting digital payment infrastructure.

It should be noted that, in August 2026, the average UPI transaction value in India was approximately ₹1,217 (calculated from NPCI's official totals of 24.51 billion transactions valued at ₹29.82 lakh crore).

Government Protects Small-Ticket Payments and Personal Transfers

A formal notification issued by the Union Finance Ministry ensures that UPI payments up to ₹2,000 remain protected from direct or indirect transaction costs. The policy safeguard guarantees that everyday retail expenses including purchasing groceries, paying local bills, or buying medicines attract no additional charges.

All person-to-person (P2P) transfers between individuals, such as sending money to family or splitting bills with friends, are also excluded from the new fee framework, regardless of the amount transferred. The proposed levy applies strictly to commercial person-to-merchant (P2M) transactions crossing the ₹2,000 threshold.

NPCI Consults Industry Partners on Proposed 0.4% Rate

Following the regulatory update, the NPCI opened consultations on Tuesday with commercial banks, payment aggregators, and fintech companies to finalize the Merchant Discount Rate (MDR) structure for high-value payments.

Authorities are considering a standard 0.4% fee on transactions exceeding ₹2,000. Key elements under discussion include the operational details of the fee implementation and the distribution of generated revenue among ecosystem players:

• Commercial Banks: Set to receive a 40% share of the collected fee to cover transaction processing and account settlement costs.
• Payment Applications: Platforms such as PhonePe, Google Pay, Paytm, and CRED will share a 30% portion.
• Payment Service Providers: Merchant aggregators managing physical and online checkout networks will receive the remaining 30%.

Monetising High-Value Volume to Fund Infrastructure Growth

India's digital payment ecosystem recorded over 24,000 crore UPI transactions worth ₹314 lakh crore in FY26. However, maintaining high-speed processing servers, fraud prevention systems, and cybersecurity infrastructure requires substantial annual investment from banks and payment firms.

Industry estimates indicate that transactions above ₹2,000 account for only around 4% of total UPI volume, yet represent nearly two-thirds of the total monetary value processed across the network. Reintroducing a 0.4% fee on these higher-value commercial transactions is expected to generate between ₹5,000 crore and ₹10,000 crore annually, establishing a self-sustaining funding model for the country's payment network.