Govt: No Bank Charge on UPI Payment up to Rs 2,000

 Key Highlights & Summary 

• Notification on Digital Transaction Charges: The Ministry of Finance notified that banks and system providers cannot levy any direct or indirect charges on UPI transactions up to Rs 2,000 and RuPay debit card payments.

 • Potential MDR on High-Value Transactions: The policy paves the way for introducing a fee, such as a Merchant Discount Rate (MDR) around 0.4-0.5%, on higher-value person-tomerchant (P2M) transactions above Rs 2,000. 

• Decision-Making Authority: The decision on charging higher-value transactions rests with the 22-member UPI and Services Steering Committee, led by the National Payments Corporation of India (NPCI) alongside banks and third-party app providers. 

• Transaction Distribution Dynamics: In 2025-26, transactions over Rs 2,000 constituted only 4% of total P2M UPI transactions by volume, yet accounted for nearly two-thirds of total P2M payment value. 

• Legislative Backing via Statutory Amendment: The notification follows Parliament passing the Taxation and Other Laws (Amendment) Bill, 2026, which amended Section 10A of the Payment and Settlement Systems Act, 2007. 

• Financial Scale of Digital Payments: Over 24,000 crore UPI transactions worth Rs 314 lakh crore were executed in 2025-26, highlighting the vast scale of India\'s digital payment ecosystem. 

Essential Definitions 

• Unified Payments Interface (UPI): An instant real-time payment system developed by NPCI that facilitates inter-bank peer-to-peer (P2P) and person-to-merchant (P2M) transactions. 

• Merchant Discount Rate (MDR): A fee levied on a merchant by a bank for accepting payments from customers via digital payment instruments. 

 • Person-to-Merchant (P2M) Transaction: A commercial payment made by an individual consumer directly to a business or vendor for goods or services rendered. 

Legal and Constitutional Framework 

• Payment and Settlement Systems Act, 2007: Section 10A governs the regulation of payment systems and charges, ensuring statutory oversight of digital transaction frameworks. 

• Income Tax Act, 1961: Section 269SU mandates prescribed electronic modes of payment for business entities to encourage a less-cash economy.

 • Article 246 of the Indian Constitution: Grants Parliament the legislative competence over banking, currency, legal tender, and financial regulation under List I (Union List) of the Seventh Schedule. 

Conclusion The government\'s framework strikes a balanced approach by protecting small retail users from transaction fees while enabling ecosystem sustainability through potential MDR on high-value merchant payments. This strategic shift supports financial inclusion while building a revenue-viable architecture for digital payment providers.

 UPSC Relevance 

• GS Paper III: Indian Economy (Digital public infrastructure, banking sector developments, financial inclusion, NPCI regulations, and monetary policy mechanisms).

• GS Paper II: Governance (Statutory amendments, public policy formulation, and digital governance initiatives).