The Ministry of Finance issued a gazette notification on 14 September 2026 barring banks and payment system providers from levying any charge, direct or indirect, on a UPI transaction of up to ₹2,000 or on a RuPay debit card payment. The notification was issued under Section 10A of the Payment and Settlement Systems Act, 2007. It follows a recent amendment to that Act which opened the door to a merchant discount rate on higher-value merchant payments. The Finance Ministry separately clarified on 15 September 2026 that person-to-person UPI transfers stay free whatever the amount. For exams, this links digital payments, NPCI and payments regulation.
The Ministry of Finance notified new rules on 14 September 2026 under the Payment and Settlement Systems Act, 2007. The notification says no bank and no system provider shall impose, directly or indirectly, any charge on a person making or receiving a payment through a RuPay debit card or through a UPI transaction of up to ₹2,000. News of the notification broke on 15 September 2026. The same day, the Finance Ministry clarified that person-to-person UPI transfers carry no charge at all, whatever the value.
The notification is dated 14 September 2026 and was issued from New Delhi by the Department of Financial Services. It applies across India to every bank and every authorised payment system provider. UPI and RuPay are both operated nationally by the National Payments Corporation of India, which is headquartered in Mumbai.
- Ministry of Finance, Department of Financial Services — issued the notification.
- National Payments Corporation of India (NPCI) — incorporated in 2008; operates UPI and RuPay.
- Banks and payment system providers — the entities barred from levying the charge.
- Merchants — the parties for whom a merchant discount rate above the threshold is still undecided.
- Consumers — protected for small-value payments and for all person-to-person transfers.
1. Section 10A of the Payment and Settlement Systems Act, 2007 lets the Central Government prescribe electronic modes of payment on which no charge may be levied. The notification is the instrument that names those modes.
2. Two modes have been named — RuPay debit card payments, and UPI transactions up to ₹2,000. Naming them in the notification is what makes the bar legally enforceable on banks.
3. The words "directly or indirectly" close the obvious escape route: a bank cannot recover the same amount through a differently labelled fee.
4. Above ₹2,000, the notification is silent. That silence is deliberate — it leaves room for a merchant discount rate on larger merchant payments without touching small payments.
5. Person-to-person transfers sit outside the merchant-payment logic altogether, so the Finance Ministry confirmed they stay free at every value.
- Economic: small-ticket digital payments are where most UPI volume sits, so the bar protects the bulk of everyday transactions from cost.
- Policy: it separates consumer payments from merchant payments, allowing revenue to be raised from one without taxing the other.
- Social: street vendors, small shopkeepers and low-income users transact overwhelmingly in small amounts, and are shielded.
- Regulatory: it shows a statutory notification, rather than an informal assurance, being used to fix the zero-charge regime.
The Payment and Settlement Systems Act was enacted in 2007 and is the parent law for payment systems in India. The National Payments Corporation of India was incorporated in 2008 as the umbrella body for retail payments. RuPay and, later, UPI were both built by NPCI and grew into the country's dominant retail payment rails. Section 10A of the 2007 Act supplied the power to declare prescribed electronic modes free of charge, and the 14 September 2026 notification is the current exercise of that power.
- Payment and Settlement Systems Act, 2007 — the statute under which payment systems in India are authorised and regulated; Section 10A carries the power to prescribe charge-free electronic modes.
- National Payments Corporation of India — an umbrella organisation for retail payments, incorporated in 2008, which built UPI and RuPay.
- Merchant Discount Rate (MDR) — the fee a merchant pays on a card or digital payment, shared among the acquiring bank, the issuing bank and the network.
India's retail digital payment volumes are among the largest in the world, and UPI is the single biggest contributor: NPCI recorded over 24,500 million UPI transactions in August 2026 alone. Most large economies allow interchange and merchant fees on card payments and regulate them through caps rather than through outright prohibition. India's approach is different in kind — a statutory bar on charging for a named payment mode rather than a ceiling on the fee. Countries such as Brazil, with its Pix system, have taken a comparable route of building a low-cost public payment rail.
Core Concept: Merchant Discount Rate and the regulation of digital payments in India
Q1. Under the notification issued by the Ministry of Finance on 14 September 2026, UPI transactions up to which value are free of any charge? [Easy]
A) ₹1,000
B) ₹2,000
C) ₹5,000
D) ₹10,000
Answer: B
Explanation: The notification bars any charge on a UPI transaction of up to ₹2,000.
Q2. Which organisation operates both UPI and RuPay? [Easy]
A) Reserve Bank of India
B) Securities and Exchange Board of India
C) National Payments Corporation of India
D) Indian Banks' Association
Answer: C
Explanation: The National Payments Corporation of India, incorporated in 2008, operates both UPI and RuPay.
Q3. The September 2026 notification on UPI and RuPay charges was issued under which statute? [Moderate]
A) The Banking Regulation Act, 1949
B) The Reserve Bank of India Act, 1934
C) The Payment and Settlement Systems Act, 2007
D) The Information Technology Act, 2000
Answer: C
Explanation: It was issued under Section 10A of the Payment and Settlement Systems Act, 2007.
Q4. Which department of the Union Government issued the notification? [Moderate]
A) Department of Economic Affairs
B) Department of Financial Services
C) Department of Revenue
D) Department of Expenditure
Answer: B
Explanation: The Department of Financial Services, under the Ministry of Finance, issued the notification dated 14 September 2026.
Q5. Which of the following payments is NOT charge-free under the September 2026 notification? [Moderate]
A) A RuPay debit card payment of ₹8,000
B) A UPI payment of ₹1,500 to a shop
C) A person-to-person UPI transfer of ₹50,000
D) A UPI payment of ₹9,000 to a merchant
Answer: D
Explanation: The notification protects UPI transactions only up to ₹2,000; the Finance Ministry separately confirmed that person-to-person transfers stay free at every value, and RuPay debit card payments carry no ceiling.
Q6. What share of person-to-merchant UPI payments exceeded ₹2,000 in 2025-26? [Tricky]
A) 4%
B) 14%
C) 24%
D) 40%
Answer: A
Explanation: Only 4% of person-to-merchant UPI payments crossed ₹2,000 in 2025-26, which is why the threshold protects most transactions.
Q7. Which statement best describes the status of the merchant discount rate on UPI payments above ₹2,000 as on 15 September 2026? [Tricky]
A) It has been fixed at the same level as the credit card MDR
B) It has been abolished by the notification
C) It has not yet been decided
D) It has been transferred to the Reserve Bank of India for notification
Answer: C
Explanation: The notification is silent above ₹2,000 and the government had not fixed a rate for that band as on 15 September 2026.
Q8. The phrase "directly or indirectly" in the notification is significant because it [Tricky]
A) extends the bar to state governments
B) prevents banks from recovering the same amount under a different label
C) brings credit card payments within the bar
D) applies the bar only to public sector banks
Answer: B
Explanation: The wording closes the route by which a bank could recover an equivalent sum through a differently named fee.
PYQ 1:
The National Payments Corporation of India was incorporated in which year?
A) 2005
B) 2007
C) 2008
D) 2016
Answer: C
Explanation: NPCI was incorporated in 2008 as the umbrella organisation for retail payments in India.
PYQ 2:
Consider the following statements regarding the Finance Ministry notification of 14 September 2026:
It bars any charge on UPI transactions of up to ₹2,000.
It bars any charge on payments made through RuPay debit cards.
It was issued under the Payment and Settlement Systems Act, 2007.
Which of the above statements is/are correct?
A) 1 only
B) 1 and 2 only
C) 2 and 3 only
D) All of the above
Answer: D
Explanation: All three are correct — the notification names both modes and was issued under Section 10A of the Payment and Settlement Systems Act, 2007.
PYQ 3:
Assertion (A): The September 2026 notification leaves UPI payments above ₹2,000 outside its protection.
Reason (R): Parliament amended the Payment and Settlement Systems Act, 2007 in 2026, making a charge on higher-value merchant payments legally possible.
A) Both A and R are true, and R is the correct explanation of A
B) Both A and R are true, but R is not the correct explanation of A
C) A is true but R is false
D) A is false but R is true
Answer: A
Explanation: The notification protects only up to ₹2,000, and the 2026 amendment to the Act is precisely what created the legal space for a charge above that threshold.
Question 1 (150 words): Examine the rationale for exempting small-value UPI payments from any charge while leaving higher-value merchant payments open to a fee.
The exemption rests on a simple distributional judgement: the payments that matter most for financial inclusion are also the smallest, and a fee on them would fall hardest on those least able to absorb it. Industry data reported on 15 September 2026 placed 96% of UPI transactions by volume below ₹2,000, and only 4% of person-to-merchant payments crossed that line in 2025-26. Protecting the small band therefore shields almost all users while leaving a narrow, higher-value segment available as a revenue base.
That revenue matters, because a payment network needs continuous investment in cybersecurity, fraud prevention and capacity. A fee confined to larger merchant payments lets the system fund itself without taxing the street vendor. The design question ahead is where the rate is set; the stated intention that it stay below the debit and credit card MDR is the discipline to watch.
Question 2 (250 words): Digital payments in India have been built as a public utility rather than a commercial product. Discuss this proposition with reference to the regulatory framework and the September 2026 notification.
India's retail payment architecture was designed from the outset as shared infrastructure rather than as a business. The Payment and Settlement Systems Act, 2007 placed payment systems under a single statutory framework, and the National Payments Corporation of India, incorporated in 2008, was created as an umbrella body rather than as a profit-seeking network. UPI and RuPay grew out of that structure, and their scale is now considerable — NPCI recorded more than 24,500 million UPI transactions in August 2026.
The notification of 14 September 2026 is the clearest expression of the public-utility logic. Issued under Section 10A of the 2007 Act, it bars banks and system providers from imposing any charge, directly or indirectly, on RuPay debit card payments and on UPI transactions up to ₹2,000. This is a prohibition, not a cap — a stronger instrument than the interchange ceilings that most large economies use, and closer to Brazil's Pix in spirit than to card-network regulation.
Yet the same episode shows the limits of the utility model. Parliament amended the Act in 2026 precisely because the rails need continuing investment that cannot be funded indefinitely from bank balance sheets. The result is a two-tier settlement: a permanently free small-value layer, and an undecided merchant-fee layer above ₹2,000.
The way forward lies in fixing that higher rate transparently and keeping it demonstrably below card MDR, so that the inclusion gains of the last decade are financed rather than reversed.