UPI Fee Rules: What Users and Merchants Need to Know About the Rs 2,000 Limit? All Your Questions Answered

The government has clarified the latest rules around UPI charges, Merchant Discount Rate (MDR) and RuPay debit card payments, addressing concerns over whether users could be charged for making digital payments.

According to the Department of Financial Services (DFS), UPI person-to-person (P2P) transactions remain free, while the majority of merchant transactions also continue without charges. The government has specifically clarified the treatment of low-value UPI payments and certain higher-value merchant transactions.

Here is everything you need to know about UPI charges in India, the Rs 2,000 limit, MDR and what the new rules mean for customers and merchants.

Will UPI Payments up to Rs 2,000 be Charged?

No. UPI merchant payments of up to Rs 2,000 are covered under the government's low-value payment framework. RuPay debit card payments are also covered under the applicable provisions.

The government has previously stated that no charge, including MDR, is payable on RuPay debit card and BHIM-UPI payments under the relevant framework. The current clarification continues to protect low-value BHIM-UPI person-to-merchant transactions.

This covers many everyday payments, including purchases at kirana stores, food outlets, pharmacies, local shops and other merchants.

Will UPI-to-UPI Money Transfers Remain Free?

Yes. Person-to-person (P2P) UPI transactions remain free.

This means transferring money to a family member, friend or another individual is different from paying a merchant for goods or services. The current MDR discussion primarily concerns person-to-merchant (P2M) payments.

The Finance Ministry has specifically stated that UPI continues to remain free for P2P transactions.

What happens if a UPI merchant payment is above Rs 2,000?

The Rs 2,000 threshold is relevant to merchant payments, not person-to-person transfers.

Under the framework outlined by the government, selected higher-value P2M UPI transactions can attract MDR. MDR is a fee within the merchant payment ecosystem, rather than a charge that is automatically deducted from the customer's bank account.

This distinction is important: a customer making a UPI payment above Rs 2,000 should not assume that a UPI fee will automatically be added to the payment.

What is MDR?

Merchant Discount Rate, or MDR, is a fee associated with processing certain digital merchant payments.

It can form part of the payment ecosystem involving banks, payment networks and payment service providers. UPI had operated with zero MDR for several years, helping accelerate digital payment adoption in India. The government continues to provide support for low-value BHIM-UPI transactions.

Can a Shopkeeper Charge Customers Extra for Accepting UPI?

The MDR framework is primarily between participants in the payment ecosystem. Merchants should not simply add a separate UPI surcharge to customers because an MDR applies to a particular transaction.

The government's clarification is particularly relevant because customers have raised concerns that merchants could pass payment-processing costs directly to them.

For everyday low-value UPI payments covered by the framework, the objective remains to keep the payment experience free of MDR.

Are Small Merchants Protected from MDR?

Yes, the government has continued to support low-value digital payments made to merchants.

The DFS says UPI remains free for the overwhelming majority of merchant transactions, with its September 2026 communication stating that 96% of merchant transactions remain free.

This is significant for small businesses such as neighbourhood shops, street vendors and local service providers that rely heavily on QR-code payments.

Does the Rs 2,000 Limit Apply to All UPI Transactions?

No. The Rs 2,000 threshold discussed in the government's low-value payment framework applies to eligible UPI person-to-merchant transactions. It should not be interpreted as a limit on how much money users can transfer through UPI.

For example:

• Sending Rs 5,000 to a friend: P2P transaction; the MDR discussion does not apply.
• Paying Rs 1,500 to a shop using UPI: Low-value merchant payment.
• Paying a merchant Rs 5,000 using UPI: Falls into the higher-value merchant-payment category where applicable MDR rules may apply.

Why is the Rs 2,000 Threshold Important?

The threshold covers a large portion of everyday digital payments in India. Purchases at grocery stores, pharmacies, restaurants, tea stalls, salons, parking facilities and local businesses often fall within this range.

Keeping such payments free helps maintain the low-friction nature of UPI, particularly for smaller merchants and consumers.

The government has also used incentive schemes to promote RuPay debit cards and low-value BHIM-UPI P2M transactions. For example, its FY2023-24 scheme specifically covered BHIM-UPI P2M transactions of up to Rs 2,000.

What About RuPay Debit Card Payments?

RuPay debit card payments are also covered by the government's digital-payment support framework.

The Department of Financial Services has stated that, since January 1, 2020, no charge, including MDR, is payable on payments made using RuPay debit cards and BHIM-UPI under the relevant provisions.

Will UPI Become a Paid Service for Users?

The latest government clarification does not mean that UPI users will start paying a fee for regular P2P transfers or ordinary low-value merchant payments.

Instead, the framework distinguishes between free transactions and selected merchant transactions where payment-processing charges can apply within the ecosystem.

For consumers, the key takeaway is that UPI remains free for P2P payments, while low-value merchant payments continue to receive protection under the government's framework.

UPI Charges: What Users Need to Remember

The latest clarification can be summarised in four points:

• P2P UPI transfers remain free.
• Eligible UPI merchant payments up to Rs 2,000 remain protected from MDR.
• Higher-value merchant transactions may fall under applicable MDR rules.
• MDR is a merchant-payment processing charge and should not automatically be treated as a fee charged to the customer.

With UPI now deeply integrated into everyday payments, the clarification is aimed at separating consumer-facing UPI charges from merchant-side payment-processing costs while maintaining the zero-cost experience for most everyday digital transactions.