Finance Ministry locks UPI payments up to Rs 2,000 against bank charges

The Finance Ministry on 14 September named two electronic payment modes that banks and system providers may not charge, directly or indirectly: RuPay-powered debit cards, and Unified Payments Interface transactions of up to Rs 2,000. The gazette uses Section 10A of the Payment and Settlement Systems Act, 2007. The ban covers both the person who pays and the person who receives.

The text does not impose a fee on UPI transfers above Rs 2,000. It also does not repeal the government's earlier line that person-to-person UPI will stay free. What it does is put a statutory fence around the mass of small merchant and peer payments that make up daily use. One widely cited breakdown said the Rs 2,000 line would cover about 5 percent of UPI transactions by volume and around 65 percent by value. That mix is the political core of the notification. High-frequency tea, auto and kirana payments stay inside the free zone. Large-ticket merchant flows sit outside it and can still be discussed under a future merchant discount rate.

In August the government said it might consider a nominal MDR on a limited class of merchant UPI payments above a threshold. Banks have argued for years that a rail with tens of billions of transactions a year cannot run forever on float and adjacent products. Fintechs and small merchants have argued that any charge at the till will push cash back onto the counter. The 14 September gazette answers the first political question and leaves the second open. It also rejects claims that outside pressure drove the design. The ministry called those reports unfounded and false.

For a user the immediate rule is simple. A Rs 500 grocery scan stays free. A Rs 1,800 school fee stay free. A RuPay debit-card tap stays free at any amount under this notification. A Rs 8,000 merchant payment is not newly taxed by this gazette. It is also not newly protected. Any MDR on that ticket would need a later instrument.

NPCI built UPI as a public switch. The banks and third-party apps sit on top of it. Section 10A was written so that the Centre, not only the Reserve Bank, can name payment modes that must remain free. Using that section on a rupee threshold rather than on the entire UPI stack is the actual policy choice. It keeps the option of charging some merchants later without reopening the consumer fight that would follow a blanket fee.

The next document to watch is not another press note. It is whatever the Department of Financial Services and the Reserve Bank publish on MDR for merchant categories above the threshold. Until that paper appears, the 14 September gazette is the binding line: Rs 2,000 and below on UPI, and RuPay debit, cannot be charged by a bank or a system provider on either side of the payment.