India’s National Payments Corporation of India (NPCI) has announced that it will begin charging a 0.4% merchant fee on Unified Payments Interface (UPI) transactions above ₹2,000 (approximately $21) starting October 15, 2026. This marks a significant change from the previous zero-fee model that has been in place since 2020, when the government eliminated fees to spur digital payments adoption across the country. Consumers will still be able to use UPI for free, but merchants accepting larger payments will need to pay the fee, which is capped at ₹300 (around $3) for transactions over ₹75,000.

The UPI system, which is a cornerstone of India’s digital payments landscape, processes billions of transactions monthly—24.51 billion worth ₹29.9 trillion ($312 billion) in August alone. NPCI acknowledges that the cost of maintaining this vast infrastructure, including technology, security, and fraud prevention, is estimated at ₹200 billion ($2.1 billion) annually. The new merchant fees will fund these operational costs as well as support future investments in infrastructure and merchant onboarding, particularly in smaller cities and rural areas.

Exceptions to the fee structure are in place: merchants with monthly UPI receipts up to ₹100,000 (about $1,041) remain exempt, and smaller transactions under ₹2,000 continue to be free. Certain sectors like railways, telecom, insurance, and fuel will have a fixed fee of ₹5 (5 cents) on payments over ₹2,000, while capital-market transactions are charged a modest 0.02% fee capped at ₹300. NPCI also prohibits merchants from passing this fee on to customers, expecting businesses to absorb the cost due to its relatively low rate compared to credit and debit card fees.

The move has sparked debate within India’s payments and economic communities. While some see the fee as necessary for the network’s sustainability, others emphasize UPI’s role as digital public infrastructure that has reduced cash reliance and broadened financial inclusion. The long-term impact on merchant behavior and consumer payment preferences remains uncertain, with the sector closely watching how these charges might influence the overall cost-effectiveness and adoption of digital payments for higher-value transactions.