UPI person-to-person and small merchant payments are free in India — only PPI wallet payments above ₹2,000 attract merchant interchange.
UPI handles more daily transactions than any other digital payment system in the world, and FY 2026-27 sees the conversation around charges still active — driven by NPCI directives, RBI clarifications, and successive Union Budget pronouncements that reaffirm UPI as a free public utility for person-to-person and small-merchant payments. Understanding what is charged and what is not is essential for businesses and consumers alike.
Person-to-Person UPI is Free
P2P transfers between individuals on UPI carry zero Merchant Discount Rate, zero customer fee and zero recipient fee. NPCI policy backed by RBI ensures that banks cannot levy any charge on bank-account-to-bank-account UPI between individuals. This is a deliberate public-good design — UPI underpins everything from rent payments to family transfers.
Small Merchant Payments Also Free
Payments by customers to small merchants for routine purchases similarly carry no charge for either side. The government has periodically reimbursed banks and acquirers for the cost of low-ticket UPI through incentive schemes notified by the Ministry of Electronics and Information Technology. RuPay debit-card-on-UPI for sub-₹2,000 transactions also remains free.
Prepaid Payment Instruments on UPI
NPCI permitted PPI wallets (such as Paytm, MobiKwik, Amazon Pay) to be linked to UPI handles. For payments funded from a PPI wallet to a merchant above ₹2,000, an interchange of around 1.1% may be levied on the merchant — not the consumer. NPCI clarified that direct bank-account UPI remains charge-free and the interchange does not apply to bank-funded transactions.
Cross-Border and International UPI
- UPI-PayNow linkage with Singapore allows real-time low-cost remittance.
- UPI acceptance in UAE, Bhutan, Nepal, Sri Lanka, France and selected European destinations.
- Charges depend on the corresponding scheme operator and forex margin, not NPCI itself.
- RBI reporting under LRS applies for outward remittances exceeding the prescribed limit.
Merchant Settlement Cycle
UPI merchant payments settle on a T+0 or T+1 basis depending on the acquirer. There is no MDR for QR-code-based payments at small merchants, which is the dominant settlement mode. Large merchants accepting PPI-on-UPI above ₹2,000 may absorb the interchange or factor it into pricing — without passing it to the customer.
GST on Payment Charges
Where a payment charge is levied (such as PPI interchange or international remittance margin), GST at 18% applies. Bank-funded P2P UPI is not a supply of service for GST purposes since no consideration is charged. RBI's Citizen Charter for UPI reiterates that any unauthorised charge can be reported to the RBI Banking Ombudsman.
Conclusion
UPI for everyday Indian use — sending money to family, paying a chaiwala, splitting a restaurant bill, settling rent — remains genuinely free, and Union Budget 2026 reaffirms that policy. The narrow exceptions involve PPI wallets and international corridors, and they apply to merchants, not consumers, through FY 2026-27.
