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UPI Transaction Charges: How much Digital Payments Cost You?

Updated: May 22

UPI Transaction Charges_ How much Digital Payments Cost You
UPI Transaction Charges_ How much Digital Payments Cost You

The introduction of the Unified Payment Interface (UPI), launched by the National Payments Corporation of India (NCI), transformed how transactions happen in India. The UPI technology allows users to transfer money to people, merchants, and banks with a simple tap on their mobile phones.


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Online payments became the norm after instant bank-to-bank payments on UPI apps. In India, UPI payments quickly became the favorite mode of payment for large and small transactions. In this blog, we delve more into the world of UPI and give you a detailed overview of UPI transaction charges and fees.

UPI – Prepaid Payment Instrument (PPI) 

UPI – Prepaid Payment Instrument (PPI)
UPI – Prepaid Payment Instrument (PPI)

Prepaid Payment Instrument refers to digital wallets where users can store their money to make instant real-time payments. Different PPIs currently used are digital wallets, preloaded gift cards, smart cards, digital vouchers, and magnetized chips.

The most commonly used PPI is the digital wallet enabled by apps like PhonePe, Paytm, Amazon Pay, etc. SODEXO vouchers and Freecharge wallets also enable wallet payments. To initiate payment through the wallet, you only have to scan the UPI QR code using the built-in QR code scanner in these digital wallet apps.

The PPIs enable users to send and receive money without physical cash or a card. As long as your UPI is linked to your bank account, you can make UPI payments without loading your digital wallet. You can also use PPIs without linking your UPI bank account and send and receive money through digital wallets.

The idea of cashless transactions and freedom from carrying cards or cash makes PPIs more appealing to customers. The newer payment modes make it possible to pay for anything from anywhere without carrying a physical wallet. As all online transactions are automatically electronically authorized, the exposure of card numbers and fraud is significantly reduced. It also helps merchants get instant payments, thus making it possible for their business to flourish.

Starting from April 2023, NPCI has also authorized NRIs with international mobile numbers to link their NRE and NRO bank accounts with UPI to enjoy seamless transactions. Now, sending money to friends and family in India and abroad will be hassle-free.

What are UPI’s Transfer Limits?

While UPI payments are fast, convenient, and easy, there is a limit to the amount and number of transactions you are allowed to make daily. As per NPCI, the maximum UPI transaction limit is Rs. 1 lakh daily. Educational institutions and healthcare facilities are provided a limit of Rs. 5 lakh per day.

The bank-to-bank transfer limit varies from Rs. 25,000 to Rs. 1 lakh based on the bank account linked with your UPI. The UPI transfer limit is set daily or monthly, depending on the bank. 

UPI New Regulations

Starting from April 1, 2023, merchants who receive payments from customers via PPI wallets on UPI must pay intercharge fee of 1.1% for transactions exceeding Rs. 2000. Customers can continue to pay merchants using any UPI app without any charge. No fees are involved for customers making bank transfers or UPI payments.


UPI Fees

The PPIs enable UPI payments and are the most common payment methods. As the PPIs offer UPI services, interchange fees are applicable. This interchange fee is usually associated with card payments. The interchange fee covers processing, accepting, and authorization costs. You can compare interchange fees to merchant discount rates, which are common when using credit cards. Payment service providers and banks use this fee to generate an additional revenue stream. 

For UPI transactions, merchants pay the interchange fee to allow customers to pay through UPI. For example, if you pay a merchant through Paytm using a QR code, the merchant who receives the payment will pay the interchange fee to Paytm. The interchange fee depends on the payment service provider and the type of service. The fee is usually 0.5% to 1.1% of the transaction amount. The interchange fee is shown below:

UPI Fees - Table
UPI Fees - Table

UPI Fees for Customers

Customers who make online payments prefer paying through PPIs. So, naturally, they want to know whether they have to pay a fee for this service. To enable UPI payments, the PPIs don't charge any fees to the customer. You can initiate and complete peer-to-peer (P2P) and peer-to-merchant (P2C) transactions without a fee. Thus, you can pay any person or business through PPI without additional processing fees.

While interchange fees are involved, the banks take care of them. The merchant bank, which receives the payment via UPI, pays an interchange fee to the bank of the person making the payment.  

No fees or charges are involved in linking your bank account with the UPI. Banks automatically pay interchange fees for every transaction when a wallet is linked to UPI. You can confidently make UPI payments to a merchant, friends, family, or any other individual without paying any additional charge.

UPI Fees for Merchants

Merchants that accept digital payments through PPIs, where customers can pay using their digital wallets, must pay interchange fees. This fee covers all types of costs to facilitate this type of transaction. The new guidelines require merchants to settle these charges. However, merchants can pay this fee by themselves or transfer the cost to the customers when they make digital wallet payments. Adjusting your pricing strategy allows you to cover these costs effectively without overburdening your customers.

While the interchange fee may seem like a burden, enabling interoperability between multiple PPIs in the UPI ecosystem is necessary. Introducing fees and increasing competition among PPIs will enable merchants to negotiate with their payment providers for lower rates.  

UPI Fees for PPIs

When customers reload their wallets, the PPIs pay the interchange fee. For wallet loading, PPIs must pay 0.15% to the banks when customers add more than Rs. 2000 to their digital wallets. Again, the customers will remain unaffected by this charge and can continue to get a seamless experience with their PPIs. The PPIs that enable digital wallet service must pay the banks from which money is loaded into the PPI wallet.

Free UPI Transactions

From 2024, merchants who receive more than Rs. 2000 through PPIs like mobile wallets must pay a transaction fee of 1.1% to the PPI. However, users who pay through PPIs and choose UPI payments need not pay any fees.

Personal transactions are always free through PPIs. You can also pay for businesses through PPIs and pay any amount of money to complete the online transaction. The users are not charged; only the merchants who receive the payment are charged. If you send money to family or friends who are also individuals, they don’t have to pay any fees. Only users who are registered as merchants and receive money for providing goods and services need to pay the fees.

Effect of Interchange Fees

The new announcement from the NPCI has created skepticism about using UPI payments. Mobile payments make day-to-day transactions easier for everyone. So, the application of interchange fees and charges concerns users and business owners. Until now, users haven't had to worry about using the PPI apps to pay for all online transactions. Now, UPI is so prevalent that small shopkeepers to large supermarkets encourage customers to pay through PPIs. 

To clear all doubts, NPCI has commented that all types of bank-to-bank transfers that happen via UPI will remain free. You can transfer funds to another bank account without worrying about any new charges or fees.

Regular UPI transactions naturally involve transfers from one bank account to another. This will continue to remain free. This includes all 3 modes of money transfer via UPI, such as transfer through Virtual Permanent Address (VPA), account number and IFSC code of the bank, and QR code.

The interchange fee of 1.1% is applicable only for merchants who receive UPI transfers of more than Rs. 2000 to their PPIs, such as wallets or cards. In this case, the person who sends the money doesn't have to pay the interchange fee. The business or individual merchant that receives the payment through PPIs must pay the interchange fee of 1.1% starting on April 1, 2023. 

This charge only applies when the customer pays from the wallet of one PPI, and the merchant receives payment through the wallet of another PPI. No charges are applicable for any transaction amount if the transfer is between the customer's bank and the merchant's bank. All bank account-to-bank account-based UPI transactions will continue to remain free.

The interchange fee is only applied to facilitate transaction costs between two different wallets. Multiple PPI wallets play a crucial role in the UPI ecosystem, enabling interoperability. This allows customers and merchants to pay and receive money hassle-free. Within the UPI ecosystem, the type of digital wallet doesn't matter. If you choose the UPI payment mode, you can quickly transfer funds to any digital wallet.

Interchange Fees – The Bigger Picture

The UPI ecosystem needs a sizable investment in the technology behind it. Currently, the government provides numerous incentives to enable UPI transactions nationwide. There have been no charges until now for making UPI transactions. As UPI payments are safe and reliable, both individual users and merchants prefer using the UPI mode of payment. 

With India’s growing UPI ecosystem, more PPIs enter the market to provide a range of services. Enabling interoperability between different types of PPIs also requires investment in technology. The UPI interfaces are made resilient to make the transactions as seamless as possible. The digital services market is huge in India, with more than 300 to 500 million people continuing to use online financial services. The charges for using this system have been zero to ensure everyone adopts the newer digital ecosystem.

The NPCI chief, Dilip Asbe has commented that a small and reasonable fee for large merchants may be imposed in the near future. This will not, however, impact smaller merchants that can continue to benefit from UPI payments. The users, however, who choose UPI payments need not worry because they don't have to pay any fee to transfer funds to people or businesses. According to Dilip Asbe, the digital payment space in India is expected to grow by 10X in the next few years. 

The newly imposed interchange fee of 1.1% for transactions above Rs. 2000 is only applicable for merchants that receive payments from users using a different PPI. It also depends on the merchant's type and the transaction's value. Currently, 99.99% of UPI transactions continue to be free.

While UPI transactions minimize fraud and theft involving stealing card details and counterfeit cash, the threat posed by cybersecurity is very real. The number of cyber attacks continues to increase and threaten the payment ecosystem. However, financial services take countermeasures to prevent cybersecurity fraud. Experts suggest that at least 25% of the investment must go towards cybersecurity measures, while only 10% of the investment is currently directed towards ensuring security. 

The interoperability guidelines and the interchange fee are proposed to make the financial ecosystem more inclusive. Seamless digital payments are the ultimate goal of NPCI using UPI. The Indian fintech industry is poised for innovations and technological advancements leveraging the interoperability of digital wallets.

Both customers and merchants will benefit from interoperability. For customers, they will have more choices about how to pay the merchants. Merchants can receive payments quickly when they provide this choice to customers. The increased digital adoption enables swift transactions and ensures all transactions are authorized. It will contribute to the economic growth of the country as well.


The UPI transaction fees do not affect individual customers. You can continue making digital payments using any digital wallet, UPI ID, or IFSC code without worrying about additional charges and fees. UPI payments promote financial inclusion and make merchants responsible for an interchange fee of 1.1% when the transaction amount is more than Rs. 2000 for PPI transactions. You can pay your friends, family, or merchants using UPI payments through bank-to-bank transfers without any applicable charge. The UPI payments remain free for customers to encourage the widespread use of digital transactions.

For more in-depth information on the UPI ecosystem in india, head over to TaxBuddy to read more. Navigate tax complexities with confidence with TaxBuddy. Leveraging experienced Certified Public Accountants and secure technology, we simplify your ITR filing process, optimize your deductions, and ensure timely compliance. Leave tax anxieties behind and experience the peace of mind of expert guidance.


Q1. Are there any charges for UPI transactions?

UPI transactions are free for users. There are no fees for sending and receiving money through UPI or bank transfer. Only merchants that accept payments from customers through digital wallets need to pay interchange fees. 

Q2. Do banks impose transaction fees for UPI transfers between banks?

No, there are no transaction fees involved for UPI transfers between banks. The National Payments Corporation of India (NPCI) has facilitated seamless bank transfers through UPI without additional charges. 

Q3 Are there transaction limits with UPI and do they affect charges?

Yes, there is a UPI transaction limit of Rs. 1 lakh per day. For bank to bank transfers, the limit depends on the type of bank, type of account, etc. Your transaction will be declined when you try to exceed the limit, but no additional charges are involved. 

Q4. Do UPI transaction charges vary between UPI apps?

No, the UPI process and transaction charges remain the same on all UPI adds. Regardless of the UPI app, there are no transaction charges for customers making UPI payments and bank transfers. However, merchants must pay interchange fees based on the digital wallet and transaction amount. 

Q5 Are there any charges for failed UPI transactions?

No, there are no charges for failed UPI transactions. If the transaction fails and the amount is debited from your account, it will be reversed automatically. 

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