UPI News India: Government Scraps Charges on Small-Value Digital Payments

The notification specifically prohibits banks from passing on Merchant Discount Rate (MDR)-linked costs to consumers on these two categories, effectively keeping small-ticket UPI payments free at the point of use. For millions of small retailers, kirana stores, and everyday consumers who rely on QR-code payments for daily transactions, the clarification removes uncertainty that had built up around proposals to reintroduce charges on UPI payments.

With monthly data consistently reaching billions of transactions and trillions of rupees in value, UPI continues to generate record transaction volumes at the time of this most recent update, solidifying its position as the foundation of India’s retail digital economy. Monthly volumes increased from 22.35 billion transactions in April to an all-time high of 24.51 billion in August, according to NPCI data for the five months leading up to August 2026. Meanwhile, monthly transaction value remained stable in the range of ₹29–30 lakh crore during that time.

Source: National Payments Corporation of India (NPCI) monthly data releases, April–August 2026. April value is an approximate figure derived from reported month-on-month growth.

The pattern is notable: transaction volumes are rising faster than transaction value, a trend NPCI and industry observers attribute to falling average ticket sizes as UPI penetrates deeper into small, everyday purchases — groceries, transport fares, and neighbourhood vendor payments — rather than being driven primarily by large-ticket transfers. The National Payments Corporation of India (NPCI) has also been expanding the system’s capabilities, with pilot initiatives around UPI Lite X for offline payments in low-connectivity areas, credit lines linked directly to UPI accounts, and early integrations with wearable devices signalling the next phase of the platform’s evolution.

Beyond domestic policy, UPI’s international footprint continues to widen. Indian travellers can now use UPI for payments in select international markets, including France, Singapore, the UAE, Sri Lanka, Bhutan, and Nepal, as NPCI works with overseas partners to extend India’s digital payments model abroad. This global push is increasingly viewed as part of India’s broader digital public infrastructure strategy, positioning the country as a reference model for other economies building their own real-time payment systems.

The zero-charge requirement on transactions under ₹2,000 is likely to have a direct impact on merchant payment strategies, point-of-sale technology selections, and customer payment experience design for companies and financial decision-makers following UPI news India developments. While merchants should anticipate ongoing cost advantages on the majority of their daily digital collections, banks and fintech platforms will need to modify their charge structures and disclosures in order to stay compliant. 

UPI’s Growth in Numbers

The zero-charge notification lands on a payment rail that is already scaling at record pace. NPCI data shows monthly volumes climbing through 2026, with three consecutive months of all-time highs between June and August:

Figures as reported by NPCI; month-on-month movements reflect normal seasonal and settlement-cycle variation.

Two patterns stand out from this trend. First, transaction volume has grown faster than transaction value in recent months, indicating that everyday, smaller-ticket payments — exactly the category now protected from charges — make up a rising share of UPI usage. Second, the platform has set a new all-time volume record in successive months, suggesting adoption is still broadening rather than plateauing.

Who Gets Affected: P2M, P2P, and M2M Examples

UPI transactions are generally classified by who is sending and who is receiving money, and the new zero-charge rule does not affect each category equally. Here is how it plays out in practice:

User to Merchant (P2M)

This is the category the notification is squarely aimed at. Person-to-Merchant transactions are the ones that have historically attracted a Merchant Discount Rate (MDR) — a small fee that banks and payment aggregators charge merchants, which some players had proposed passing on to customers.

Example: Priya buys vegetables worth ₹280 from her neighbourhood vendor and pays via the vendor’s UPI QR code. Under the new rule, neither Priya nor the vendor can be charged any fee, direct or indirect, on this transaction.

Impact: This is where the rule matters most. Small retailers, kirana stores, street vendors, and local service providers — who process large volumes of small-ticket digital payments — get certainty that their UPI collections stay fee-free, which supports continued merchant adoption of QR-based payments.

User to User (P2P)

Simple transfers between two separate bank accounts, such as sharing a dinner bill or transferring money to a relative, are known as person-to-person transactions.

Example: To cover his portion of a weekend excursion, Arjun sends a friend ₹1,500.

Impact: Since MDR is a merchant-side expense, P2P transactions have typically been free of MDR fees even prior to this warning. So the practical impact on everyday P2P transfers is limited — the update mainly reinforces and legally formalises the “no-charge” position rather than changing existing user experience.

Merchant to Merchant (M2M)

UPI does not yet have a widely used, separate “merchant-to-merchant” transaction class the way P2M and P2P are defined. In practice, when one business pays another — say, a retailer paying a wholesaler — the receiving business is onboarded as a merchant, so the payment is processed and classified as a P2M transaction on the receiving end.

Example: A small electronics shop owner pays a local distributor ₹1,950 via UPI to restock inventory.

Impact: Because the receiving party is a merchant, such business-to-business payments below ₹2,000 fall under the same protection as consumer-to-merchant payments. This is a meaningful, if less-discussed, benefit for small businesses that transact with each other in small-ticket amounts — such as local retailers, distributors, and service vendors — since it keeps low-value B2B digital payments cost-free as well.

• No charge on small payments: UPI transactions up to ₹2,000 and all RuPay debit card payments are now exempt from any bank-levied fee, direct or indirect, under the 14 September 2026 gazette notification.
• Legal basis: The exemption follows amendments to the Payment and Settlement Systems Act, 2007, passed in Parliament’s Monsoon Session.
• Compliance impact: Banks and payment service providers must update fee disclosures and merchant agreements to reflect the mandate.
• Scale of the platform: UPI processed 24.51 billion transactions worth ₹29.82 lakh crore in August 2026 — its highest-ever monthly volume.
• Usage shift: Volume is rising faster than value, pointing to growing use for small, frequent, everyday payments rather than large-ticket transfers.
• Global expansion: UPI acceptance is now live or piloted in France, Singapore, the UAE, Sri Lanka, Bhutan, and Nepal.
• Product pipeline: NPCI is piloting UPI Lite X for offline payments, UPI-linked credit lines, and early wearable-device integrations.
• What to watch next: App-wise market share data (PhonePe and Google Pay currently lead), further cross-border corridor launches, and any follow-up RBI or NPCI circulars clarifying implementation of the fee exemption.

Taken together, this week’s developments underline a consistent policy direction: keeping UPI affordable and accessible for small transactions, even as the system scales up in both transaction volume and international reach. As India’s digital payments infrastructure matures further, continued regulatory clarity and platform innovation are expected to remain central themes in shaping how businesses and consumers transact in the months ahead.