Banking & payments7 min read

UPI charges above ₹2,000 start after Diwali: do you pay?

A 0.4% fee kicks in on UPI payments above ₹2,000 after Diwali 2026. Who actually pays it, the ₹300 cap, the ₹5 sectors, and why your own transfers stay free.

By BlogBanking Research TeamUpdated

The short answer

Not for you as the payer. Merchants will pay a fee of 0.4% on UPI payments above ₹2,000, capped at ₹300, or a flat ₹5 in sectors such as fuel, railways and insurance, from a date NPCI will notify after Diwali 2026. Transfers to people, payments up to ₹2,000 and small vendors stay free.

Who pays what

The fee is a merchant discount rate (MDR): a small charge the merchant's bank keeps from each qualifying payment before settling the money. It sits on the merchant's side of the transaction. The Ministry of Finance's FAQs say plainly that consumers will not be charged, merchants cannot pass the fee on, and UPI apps cannot add a platform fee to UPI payments.

Type of UPI paymentYou payThe receiver pays
Sending money to a person, any amount (P2P)NothingNothing
Transfer between your own accountsNothingNothing
Paying a shop or business, up to ₹2,000NothingNothing
Paying a small vendor (up to ₹1 lakh a month on UPI QR)NothingNothing, at any amount
Paying a business above ₹2,000Nothing0.4%, at most ₹300
Fuel, railways, telecom, insurance, utilities above ₹2,000NothingFlat ₹5
UPI AutoPay mandates (bills, SIPs, subscriptions)NothingNo prescribed MDR
Standard rate0.4%on business payments above ₹2,000
Maximum per payment₹300reached at ₹75,000
Essential sectors₹5flat, per payment

How the 0.4% fee works on different amounts

The threshold is strict: a payment of exactly ₹2,000 is free, and the fee applies only above it. From ₹75,000 upwards the fee stops growing and stays at ₹300, so very large payments cost the merchant proportionately less.

Payment to a businessStandard merchantFlat-fee sectorSmall vendor (P2PM)
₹500FreeFreeFree
₹2,000FreeFreeFree
₹2,500₹10 (0.4%)₹5Free
₹5,000₹20 (0.4%)₹5Free
₹10,000₹40 (0.4%)₹5Free
₹25,000₹100 (0.4%)₹5Free
₹50,000₹200 (0.4%)₹5Free
₹75,000₹300 (0.4%)₹5Free
₹1,00,000₹300 (0.3%)₹5Free
₹2,00,000₹300 (0.15%)₹5Free
  • On a ₹5,000 purchase the merchant gives up ₹20; on ₹50,000 it is ₹200.
  • A ₹2,00,000 payment still costs only ₹300, an effective rate of 0.15%, because of the cap.
  • In the flat-fee sectors a ₹10,000 insurance premium or fuel bill costs the receiver ₹5, whatever the amount.

Payments that stay completely free

  • All person-to-person transfers. Sending money to family or friends, splitting bills and moving money between your own accounts remain free at any permitted amount.
  • Every merchant payment up to ₹2,000. According to the FAQs these make up more than 95% of UPI merchant transactions by volume, so most daily spending is untouched.
  • Small vendors on the P2PM framework. Shopkeepers and street vendors receiving up to ₹1 lakh a month through a UPI QR into their own account pay nothing, even on a single payment above ₹2,000. A vendor who crosses that limit for 3 months in a row is moved to the regular merchant category. GST registration is not needed to stay in P2PM.
  • UPI AutoPay. Recurring mandates for utility bills, OTT subscriptions and SIPs carry no prescribed MDR.
  • No usage caps. There is no monthly quota of free transactions. The daily limits your bank sets are security limits, not charges.

Special rates and the grey areas

A few kinds of merchant get a lower or different rate, and some payment types sit outside this framework altogether:

  • Flat ₹5 sectors. Railways, telecom, insurance premiums, fuel stations and public utilities such as electricity, water and piped gas pay a flat ₹5 per payment above ₹2,000.
  • Education. School, college and examination fees above ₹2,000 get a flat fee or a capped rate. The FAQs do not yet give the exact figure, so institutions should check with their bank.
  • Capital markets. Payments to mutual funds, stockbrokers and securities dealers carry 0.02% of the amount, capped at ₹300, paid by the fund house or broker.
  • Credit on UPI. RuPay credit cards linked to UPI and pre-approved credit lines follow credit card rules, not this framework. Those charges have always been on the merchant side too.
  • Wallets. Since April 2023 NPCI has applied an interchange of up to 1.1% on wallet-funded merchant payments above ₹2,000, again borne by the merchant's side. The 2026 FAQs deal with payments from bank accounts and do not say how the two will interact, so merchants who accept wallet payments should ask their payment provider.

What it costs a business in practice

Because most payments are small, the effective cost to a typical merchant is well below the headline 0.4%. Take a shop with the following month of UPI collections:

PaymentsCountAmount eachCollectedMDR paid
Everyday sales600₹450₹2,70,000Free
Larger baskets120₹3,500₹4,20,000₹1,680
Big-ticket sales10₹60,000₹6,00,000₹2,400
Very large orders3₹1,20,000₹3,60,000₹900
Total733₹16,50,000₹4,980
  • The shop pays ₹4,980 on ₹16,50,000 of collections, an effective rate of 0.3%.
  • The same collections on debit cards could cost up to ₹14,850 at the 0.9% debit card cap the FAQs quote, and more on credit cards at 1.5% to 2.5%.
  • The 600 everyday sales below ₹2,000 cost nothing at all.
For merchants: you cannot add a surcharge
The FAQs state that merchants cannot pass the MDR on to customers; buyers pay only the displayed price. Payment processing fees are a taxable service, so expect GST on the MDR in your acquirer's invoice, and check how your bank will show the deduction in settlement reports.

Why UPI is getting a fee now, and the timeline

UPI merchant payments have been free by law since 1 January 2020. In August 2026 the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, which amends Section 10A of the Payment and Settlement Systems Act, 2007 so that the government can notify which payment modes stay free instead of keeping a blanket ban on charges. The government's reasoning is that running UPI at its present scale needs a steady source of funding for infrastructure, fraud prevention and cybersecurity, which annual subsidies were never meant to provide.

DateWhat happened
1 January 2020Zero MDR on UPI and RuPay debit cards takes effect.
1 April 2023Interchange of up to 1.1% on wallet-funded merchant payments above ₹2,000.
April 2025Finance Ministry calls reports of GST on UPI payments above ₹2,000 false; no MDR, so no GST.
August 2026Lok Sabha passes the amendment to Section 10A of the Payment and Settlement Systems Act.
15 September 2026Finance Ministry publishes FAQs on the 0.4% MDR, effective 15 October 2026.
13 October 2026NPCI defers the start to immediately after Diwali, on a date to be notified.

The government has also proposed a dedicated fund, paid for out of the MDR, to subsidise UPI acceptance among small merchants in smaller towns, the North East, Jammu and Kashmir and Ladakh. Its detailed framework is to be finalised with the RBI within three months of the September FAQs.

What you should do

  1. As a consumer, nothing changes. Keep paying by UPI as usual. If a shop asks for extra money for paying by UPI, that is not allowed; pay the displayed price and raise it with the shop's bank or your UPI app if they insist.
  2. Ignore forwarded messages about UPI tax. There is no GST or charge on consumers. Check only the Ministry of Finance, the RBI, NPCI or the Press Information Bureau for changes.
  3. As a small vendor, check your category. If your QR pays into your own savings account and you collect up to ₹1 lakh a month, you remain free. Ask your bank to confirm.
  4. As a larger merchant, plan for the cost. Estimate your share of payments above ₹2,000, confirm whether your category gets the flat ₹5 rate, and watch for NPCI's notified start date.

Frequently asked questions

Will I be charged for UPI payments above ₹2,000?

No. The MDR is paid by the merchant, merchants are not allowed to pass it on, and UPI apps cannot add a platform fee. You pay only the price of what you buy.

Is sending ₹10,000 to a friend on UPI charged?

No. Person-to-person transfers, including transfers between your own accounts, are free at any permitted amount.

Is there GST on UPI transactions above ₹2,000?

No. There is no GST on UPI payments for consumers. GST applies only to fees such as MDR that a bank charges a merchant, and that is the merchant's cost.

When does the UPI MDR start?

The FAQs set 15 October 2026, but NPCI deferred it on 13 October 2026 to immediately after Diwali, on a date it will notify separately.

Can a shop charge me extra for paying by UPI?

No. The framework does not allow merchants to pass the MDR on to customers. Pay the displayed price, and report persistent surcharges to the merchant's bank or your UPI app.

Do small shops pay the 0.4% fee?

Not if they are small vendors receiving up to ₹1 lakh a month through UPI QR into their own account. They stay at zero MDR at any payment size.

This guide explains the rules and shows illustrative figures. It is not personal tax, legal or investment advice. Check your own situation with a qualified adviser before acting.