Is the era of free UPI transactions coming to an end? MoS Finance answers

Amid speculations that the government may impose transaction charges on the NPCI-led instant real-time payment system, Unified Payment Interface (UPI), which could have a major impact on the common man, the government has clarified that it has no proposal to impose transaction charges on one of India's largest digital payment systems.

Minister of State (MoS) in the Ministry of Finance, Pankaj Chaudhary, answering a query in Parliament, said today that the Payment and Settlement Systems Act 2007 provides that no bank or system provider will impose any charge on anyone making payment, or a beneficiary receiving payment, through electronic modes.

He was asked whether the government or the RBI proposes to impose transaction charges on UPI, or if the government has assessed the impact of imposing charges on UPI transactions on its Digital India initiatives.

The Union minister said the UPI transactions are facilitated by the National Payment Corporation of India (NPCI). In 2019, the Centre permitted the acquiring banks to charge a merchant discount rate (MDR) of 0.30% of the transaction value. However, section 10A of the Payment and Settlement Systems Act 2007 says no bank or system provider can impose any charge on a UPI transaction under section 269SU of the Income-tax Act, 1961. "UPI and RuPay debit cards are prescribed as electronic modes of payment under section 269SU of the Income-tax Act, 1961."

He said to ensure continuity of the UPI services by the ecosystem partners, the Centre had implemented the incentive scheme during the last four years, i.e. FY22 to FY25. "The government has extended incentive support of around ₹8,730 crore," the junior minister in the Finance Ministry informed.

Govt's take on GST levy on UPI transactions of over ₹2000

Following reports of the GST levy on UPI transactions of over ₹2,000, the government had clarified last month that there was no such recommendation from the GST Council. "As informed by the Department of Revenue, GST rates and exemptions are decided based on recommendations of the GST Council, which is a Constitutional body comprising members from both the Centre and States/UTs. There is no such recommendation from the GST Council," Chaudhary informed the Rajya Sabha on July 22, 2025.

RBI Governor's opinion on UPI transaction charges

While the Union minister has categorically denied any recommendations regarding charges of UPI transactions, RBI Governor Sanjay Malhotra, during this month's MPC meeting press conference, addressed the issue bit differently.

He said that someone will eventually have to bear the costs involved in running the UPI. During the press conference on MPC announcements today, the RBI Governor said that who pays (for UPI) is less important than ensuring sustainability.

On being asked about some banks applying charges on UPI to payment aggregators and certain merchant categories, the RBI Governor said, "...there are costs, and these costs have to be paid by someone. Who pays is important, but not so important as someone footing the bill. So, it is important for us for the sustainability of the model, that whether collectively or individually, someone pays."

He added that UPI is not free even now, as the government subsidises it. "The real question is who ultimately pays for it."

UPI's wild popularity and global expansion

UPI has turned into a financial inclusion enabler in India. Around 6.5 crore merchants, including new merchants or small businesses, are already connected with the UPI platform. Since its launch in 2016, the UPI platform has grown exponentially, both in terms of transaction volume and value, emerging as a blockbuster payments system. In FY25, UPI recorded a transaction volume of 18,587 crore and a transaction value of ₹261 lakh crore. UPI reached a major milestone by recording 1,947 crore transactions in July 2025 alone.

Among digital payment systems in India, UPI has shown a clear lead, enhancing financial inclusion, especially in Tier 2 and Tier 3 regions. During 2024-25, total digital payments recorded growth of 34.8% and 17.9% in volume and value terms, respectively, in FY25. UPI was a clear winner as it placed India in a leadership position with a share of 48.5% in global real-time payments by volume in FY25, according to the RBI's annual report for FY25.

The International Monetary Fund (IMF), in its report on ‘Growing Retail Digital Payments (The Value of Interoperability)’ in June 2025 this year had recognised UPI as the world’s largest retail fast-payment system (FPS) by transaction volume. India has been working towards linking UPI with the FPSs of other countries to facilitate cross-border payments. Presently, UPI is live in 7 countries, i.e. UAE, Nepal, Bhutan, Singapore, Mauritius, France and Sri Lanka.