India to Introduce Merchant Fees on Larger UPI Transactions Starting October
India's UPI network will impose a 0.4% merchant fee on payments above ₹2,000 from October 15, while consumers remain free. The fee is capped at ₹300 for transactions of ₹75,000 or more, and small merchants with monthly receipts under ₹100,000 are exempt. The move aims to make the system financially sustainable, as operating costs are estimated at ₹200 billion annually.
UPI processed 24.51 billion transactions worth ₹29.9 trillion in August alone. The new 0.4% fee applies only to payments above ₹2,000, while transactions of that amount or less—which account for over 95% of merchant volume—remain free. Additionally, small merchants with monthly receipts under ₹100,000 are exempt from the charges.
Collected fees will be distributed among UPI ecosystem participants and directed toward infrastructure, cybersecurity, fraud prevention, and customer service. A portion will also seed a fund to expand digital-payment infrastructure and merchant adoption in smaller cities and rural areas. The regulatory groundwork included an August amendment to India's payments law and a Monday notification barring charges on payments up to ₹2,000.
The new merchant fee could modestly raise operating costs for mid-sized businesses that accept larger UPI payments, though most merchants remain exempt. These costs may be passed to consumers, but the ₹300 cap and ₹2,000 threshold limit the impact. The fee's revenue could strengthen network security and rural adoption, yet it may also create a perception of reduced cost-effectiveness for high-value transactions, potentially influencing payment behavior among larger retailers.