- By Priyanka Koul
- Thu, 05 Feb 2026 09:05 PM (IST)
- Source:JND
UPI Transactions: Over the past year, as digitalisation has progressed rapidly, the issue of costs associated with UPI (Unified Payments Interface) transactions has come to the forefront. Banks and payment service providers such as Paytm, PhonePe, and Google Pay etc have called for a fee to be introduced on UPI payments. However, the Ministry of Finance has firmly rejected this demand.
As UPI becomes an integral part of everyday payments, a key question emerges: How long will UPI payments remain free? The government’s position is clear: UPI will stay free for ordinary users and small traders, at least for the foreseeable future. In keeping with this commitment, the Union Budget for 2026-27 has earmarked Rs 2,000 crore in subsidies for UPI and RuPay debit card transactions. This funding will support the continuation of the Merchant Discount Rate (MDR) model.
Under the MDR framework, the government compensates banks for the costs they bear while facilitating digital transactions. In the previous year’s budget, Rs 437 crore was set aside for this purpose, but this was later increased to Rs 2,196 crore to better address the needs of the system.
Additionally, the government has put on hold any proposals to introduce an extra fee on high-value UPI transactions for now. While this decision has been welcomed by users, it has caused disappointment among banks and fintech companies, which are crucial players in the digital payments ecosystem.
At present, UPI handles over 300 million transactions every day, but concerns have been raised about the adequacy of funds allocated for scaling, fraud prevention, and infrastructure development. Banks and fintech companies argue that the cost of processing each digital payment is approximately Rs 2, but the current system does not cover these expenses adequately.
In response, the Payments Council of India, which represents the key companies in the sector, has proposed introducing a fee for larger merchants (those with a turnover exceeding Rs 10 crore). A formal presentation outlining this proposal has been made to a committee formed by the Reserve Bank of India (RBI).
Their suggestion is to introduce an additional fee of 0.2-0.3 per cent on digital payments accepted by large merchants, while maintaining that small payments and personal transactions should remain free. They have warned that the current system may not be sustainable in the long run without some changes.
However, the government has made it clear that, for the time being, no fees will be imposed on users. Officials from the Ministry of Finance and RBI have indicated that discussions regarding potential fee increases could take place in the future, should the situation require it.
It’s also worth noting that UPI’s popularity and the volume of transactions continue to break records, with further growth expected. In January 2026, UPI processed a total of 2,170 crore transactions, worth Rs 28.33 trillion.
This is slightly higher than the 2,163 crore transactions, worth Rs 27.97 trillion, recorded in December 2025. On average, 70 crore financial transactions, amounting to Rs 91.4 trillion, are processed daily.