News in Short
- UPI will introduce a 0.4% merchant fee on certain transactions above Rs. 2,000.
- The new charges will take effect from October 15, 2026.
- Consumers will continue to use UPI for free, according to NPCI.
- Payments of Rs. 2,000 or less will remain free for merchants.
- The fee will be capped at Rs. 300 for transactions of Rs. 75,000 or more.
India’s UPI payment system is about to enter a new phase. Starting October 15, 2026, merchants will have to pay a fee on certain UPI transactions above Rs. 2,000.
The National Payments Corporation of India (NPCI) has announced a 0.4% merchant fee for eligible transactions. However, there is an important point for consumers: UPI payments will continue to be free for users.
The change marks the end of the fully zero-fee model for merchants that has been in place since 2020.
What Is the New UPI Charge?
Under the new structure, merchants will pay 0.4% of the transaction value for eligible UPI payments above Rs. 2,000. There is also a maximum charge. For transactions worth Rs. 75,000 or more, the fee will be capped at Rs. 300.
For example, a Rs. 10,000 eligible transaction would attract a Rs. 40 merchant fee. A Rs. 50,000 transaction would result in a Rs. 200 fee. However, payments of Rs. 2,000 or less will remain free for merchants.
This distinction is important because NPCI says such smaller transactions account for more than 95% of UPI merchant transactions by volume.
Consumers Will Not Pay the UPI Fee
For people using UPI to pay at shops, restaurants or other businesses, the immediate change is limited.
NPCI has said that consumers will continue to pay no UPI transaction fee. Merchants will also not be allowed to add the 0.4% charge separately to the customer’s bill.
In other words, a merchant cannot simply tell a customer to pay an additional fee because they chose UPI.
The additional cost will instead have to be absorbed by the business.
Small Merchants Get an Exemption
NPCI has also created an exemption for smaller businesses. Merchants receiving up to Rs. 1 lakh per month through UPI will not have to pay the new charges.
This could help protect small retailers and businesses that rely heavily on UPI for everyday low-value payments. The move also keeps the focus of the new fee structure on larger transactions and businesses handling higher payment volumes.
Some Sectors Get a Flat Rs. 5 Fee
Not every industry will follow the standard 0.4% structure.
According to NPCI, merchants in sectors such as railways, telecom, insurance and fuel will pay a flat Rs. 5 fee on eligible UPI transactions above Rs. 2,000.
Capital-market transactions will have a separate structure. These will attract a 0.02% fee, with the charge capped at Rs. 300.
Why Is UPI Introducing Merchant Charges?
UPI has grown into the backbone of India’s digital payments ecosystem. In August alone, it processed 24.51 billion transactions worth Rs. 29.9 trillion.
But maintaining a payment network at this scale comes with significant costs.
NPCI estimates that running the UPI network, including server capacity, fraud prevention and technical support, costs around Rs. 200 billion annually.
Until now, merchants have been able to accept UPI without paying a merchant discount rate. The government has also provided subsidies to banks and payment companies for processing certain UPI transactions.
The new fee structure is therefore aimed at creating a more sustainable financial model for the ecosystem.
NPCI says the money collected will be distributed among UPI participants and used for areas such as infrastructure, cybersecurity, fraud prevention and customer service.
Will UPI Become Less Attractive?
This is likely to be the biggest question after October 15.
UPI’s biggest advantage has been its simplicity and low cost. Consumers can scan a QR code and pay instantly without worrying about transaction charges.
For most everyday purchases, that will remain unchanged.
The bigger impact could come with large purchases, where merchants will now have an additional cost. Businesses operating on thin margins may look more closely at how customers pay, even though they cannot directly pass the fee on to consumers.
At the same time, the relatively low 0.4% fee could make the transition manageable for many businesses.
Payment Companies Could Also Benefit
The new system could create a new revenue stream across India’s payments ecosystem.
Fintech companies and payment providers that have invested heavily in UPI infrastructure could benefit as merchant fees are distributed among participants.
Companies such as Paytm, Pine Labs, PhonePe and Razorpay could therefore see a financial benefit from the new model, although the exact distribution of the revenue has not been disclosed.
The bigger test will begin once the charges take effect.
What UPI Users Need to Know
| Transaction | Merchant Fee |
|---|---|
| Up to Rs. 2,000 | No fee |
| Above Rs. 2,000 | 0.4% for eligible transactions |
| Rs. 75,000 and above | Capped at Rs. 300 |
| Small merchants up to Rs. 1 lakh/month | Exempt |
| Railways, telecom, insurance, fuel | Rs. 5 above Rs. 2,000 |
| Capital-market transactions | 0.02%, capped at Rs. 300 |
| Consumer UPI fee | No charge |
What This Means for You
For consumers, nothing changes for regular UPI payments. You can continue using UPI without paying a transaction fee.
The change mainly affects merchants accepting larger UPI payments.
India is effectively trying to find a middle ground: keep UPI free for the vast majority of everyday transactions while introducing a revenue model that can help fund the infrastructure behind the country’s enormous digital payments network.
The real impact will become clearer after October 15, particularly if merchants begin changing payment preferences for larger purchases.
