Will UPI Start Charging Fees? What Parliament's New Law Means

UPI is not charging you money to pay for chai. Parliament passed a bill on August 4, 2026, giving the government power to restore merchant fees on UPI for the first time since 2020. But the proposed fee falls on large businesses, not on you when you tap your phone at a kirana store. For most of India's 600-plus million UPI users, daily payments stay free.

Key Takeaways

• Parliament's August 4 amendment enables merchant fees on UPI, but no charges are active today.
• The proposed MDR, around 0.04%, would apply only to merchants with annual turnover of ₹1 crore or more.
• Transactions under ₹2,000 are excluded from the proposal even for large merchants.
• About 90% of India's merchants, including small shops and street vendors, would remain entirely exempt.
• The real risk: some large merchants may quietly build the new cost into their pricing over time.

What Parliament Actually Changed on August 4

The amendment to the Payment and Settlement Systems Act removed the legal ban on charging merchants for UPI transactions. It doesn't impose any fee right now. It creates legal room for the government to notify a fee later, on whatever categories and amounts it chooses.

That distinction matters. "Parliament passes UPI fee bill" sounds scarier than the reality, which is that the government now has legal authority to act, not that it has acted yet.

RBI Governor Sanjay Malhotra added weight to the debate on August 5, saying the cost of running India's digital payments infrastructure has to be paid by someone. He also called specific MDR proposals premature. So the final rules could look quite different from what's being floated right now.

Why UPI Was Free for Six Years

The zero-MDR era started in January 2020. Before that, merchants paid a processing fee on every transaction they accepted, similar to how credit card processing works in other countries. The government removed that fee entirely to accelerate digital adoption and reduce India's dependence on cash.

It worked. Monthly UPI transaction value jumped from around ₹2 trillion in January 2020 to ₹18 trillion by early 2024, roughly a ninefold increase in four years.

But the network still had to be paid for. Banks and payment apps were absorbing losses on every merchant transaction. The government ran incentive schemes to partly cover those losses, and those schemes have been shrinking steadily. The commercial reality and the policy goal were seperate conversations for years, and the gap finally became too wide to ignore.

Who Pays What Under the Proposal

Here's how the current proposal breaks down across different users:

The 0.04% rate is small. On a ₹5,000 UPI payment, that's a merchant charge of ₹2. Not nothing, but not ruinous for a large retailer either.

The 90% figure is the one that matters most. Nine in ten merchants by count fall below the proposed threshold. The target is organized retail, not corner stores.

Can a Merchant Charge You Extra for Using UPI?

Technically, no. Merchants aren't allowed to add a surcharge for a specific payment method under NPCI rules and RBI guidelines. If MDR is implemented, businesses are expected to absorb it as a cost of accepting digital payments, not pass it to customers as a visible line item on the bill.

In practice, things get murkier. Nothing will feel different for most people untill the government notifies specific rules and merchants decide how to respond. Some larger businesses may build new costs into pricing gradually, which is harder to regulate and harder for consumers to notice. Finance Minister Nirmala Sitharaman has been clear that the fee falls on merchants, not consumers. Worth watching whether that holds once MDR is actually active.

What This Means If You Accept UPI Payments

If your annual turnover is under ₹1 crore, nothing changes. You're exempt.

If you run a larger shop, restaurant, or e-commerce business, the MDR, if eventually notified, would apply on UPI collections above ₹2,000 per transaction. At 0.04%, a business collecting ₹50 lakh a month in high-value UPI payments would owe roughly ₹2,000 in monthly fees. Manageable, but worth building into your cost structure now, before it lands.

There's no timetable yet. The law creates the authority. A separate government notification actually sets the rate, the categories, and the start date. Watch RBI and Finance Ministry bulletins for that announcement.

Frequently Asked Questions

Will I pay more for using UPI right now?

No. The August 4 amendment enables merchant fees but doesn't activate them. Consumers are not directly charged under any current proposal, and no notification has been issued. Until the government formally notifies an MDR rate, nothing about your daily UPI payments changes at all.

What is MDR and how does it work?

MDR stands for Merchant Discount Rate, a fee that merchants pay their bank for each digital transaction they accept. Before January 2020, UPI carried an MDR of 0.25% to 1%. It was removed to drive adoption. The new proposal discusses a much lower rate of around 0.04% for large merchants only.

Which merchants would actually pay under the proposal?

Only businesses with annual turnover of ₹1 crore or more, and only on individual UPI transactions above ₹2,000. Small kirana stores, street vendors, and neighborhood shops fall below this threshold and are explicitly protected. About 90% of current UPI merchants would pay nothing under the proposal as it stands today.

Is Indian UPI going to become like US credit card fees?

Not on the same scale. US credit card MDR runs 1.5% to 3.5% for merchants. India's current proposal targets around 0.04% for large merchants only, with consumers paying nothing directly. Even if implemented, Indian UPI fees would stay far below global card-payment benchmarks for the foreseeable future.

When will we know if UPI fees are actually coming?

No timeline exists yet. Parliament's amendment gives legal authority; the actual implementation requires a formal government notification with specific rates, merchant categories, and effective dates. Industry and government are still in early discussions. The RBI Governor called the proposals premature as recently as August 5, 2026.

The Short Version

Parliament passed a law on August 4, 2026, lifting the legal ban on UPI merchant fees. It doesn't charge anyone anything today. If fees are eventually notified, they fall on large businesses collecting high-value UPI payments, not on you when you split a dinner bill or pay at a grocery store. For most users, day-to-day UPI stays exactly as it is. The one thing to watch is whether large merchants quietly pass new costs to customers. That answer will take months, not days.