The Indian government has prohibited banks and payment system providers from levying charges on Unified Payments Interface (UPI) transactions up to ₹2,000 and on payments made through RuPay-powered debit cards. The policy was notified through the Finance Ministry and was formalised by an amendment to Section 10A of the Payment and Settlement Systems Act, 2007.
UPI and RuPay in India’s Digital Payments System
Unified Payments Interface is an instant real-time payment system developed in India for bank-to-bank transfers through mobile applications. RuPay is India’s domestic card payment network, and RuPay debit cards are issued by banks for use at point-of-sale terminals and online merchants.
The National Payments Corporation of India manages both UPI and RuPay payment systems. The National Payments Corporation of India was set up in 2008 as an umbrella organisation for retail payments in India.
Legal Basis for Charge Exemption
Section 10A of the Payment and Settlement Systems Act, 2007 allows the Central Government to specify electronic payment modes that remain free from charges. The 2026 amendment expanded this framework for exempting selected digital payment modes from bank charges.
The notification covers small-value digital payments up to ₹2,000 through UPI and all RuPay debit card payments. The rule applies to charges levied by banks and payment system providers.
Merchant Discount Rate and Transaction Threshold
Merchant Discount Rate, or MDR, is a fee paid by merchants to banks or payment service providers for accepting digital payments. The current policy leaves room for MDR on UPI transactions above ₹2,000, especially for higher-value merchant payments.
In the 2025-26 fiscal year, only 4% of person-to-merchant UPI payments exceeded ₹2,000, while these transactions accounted for about two-thirds of the total UPI payment value.
Important Facts for Exams
- UPI stands for Unified Payments Interface and operates as a real-time retail payment system in India.
- RuPay is India’s domestic card network and is managed by the National Payments Corporation of India.
- The Payment and Settlement Systems Act, 2007 governs payment systems in India.
- Merchant Discount Rate is a charge linked to digital payment acceptance by merchants.
The government has estimated an allocation of ₹2,000 crore for subsidising low-value RuPay debit card and BHIM-UPI person-to-merchant transactions in 2026-27. The policy applies to electronic payment modes notified under the Payment and Settlement Systems Act, 2007.
