Key takeaways
- UPI person-to-person (P2P) transactions remain completely free for users in 2026 — no transaction fee, no MDR.
- UPI person-to-merchant (P2M) on bank-issued UPI also remains free for users; merchants pay 0% MDR for UPI debited from bank accounts.
- For wallet-funded UPI (e.g., topping up a PPI wallet and paying), an interchange fee of 1.1% applies on transactions above ₹2,000 — paid by the merchant, not the user.
- Credit-on-UPI (paying via RuPay credit card on UPI) carries 0.5–2% MDR for merchants, depending on transaction value and merchant category.
- NPCI's 2026 circulars have not introduced direct user fees — most fee changes affect merchants and PPI issuers, with downstream effects on small-merchant pricing.
What you actually pay as a UPI user in 2026
Let us cut through the confusion: if you are paying via UPI from your savings account at HDFC, SBI, ICICI, Axis, or any other Indian bank, you pay nothing. No transaction fee, no per-transaction charge, no monthly UPI subscription. NPCI has consistently maintained zero charges on bank-account-funded UPI for end users — a policy underpinned by RBI direction and the Digital India agenda.
The fees you may have heard about (the 1.1% "interchange" or the 1–2% MDR) apply to specific scenarios, none of which directly bill the consumer.
The 1.1% interchange — when it actually applies
In April 2023, NPCI introduced an interchange fee on UPI transactions made via Prepaid Payment Instruments (PPI). A PPI is a wallet — a balance you load into Paytm Wallet, PhonePe Wallet, Amazon Pay Balance, etc. When you pay a merchant from your PPI through UPI, NPCI charges the merchant's payment gateway 1.1% of the transaction value, applied only to amounts above ₹2,000.
The rules for users:
- Transactions ≤ ₹2,000 — interchange does not apply, even from PPI.
- P2P transfers (sending to a friend) — no interchange, regardless of source.
- Bank account UPI (your HDFC/SBI/ICICI directly) — no interchange.
- PPI loading from your bank account — free for the user; banks may charge the PPI issuer.
So unless you are funding payments from a wallet balance to a merchant for amounts above ₹2,000, the 1.1% does not enter your equation.
Credit-on-UPI: the 0.5–2% reality
RuPay Credit Card on UPI launched in 2022 and has scaled rapidly. When you pay a merchant by linking your RuPay credit card to UPI and scanning a QR code, the transaction routes through both UPI and the credit card network. Merchants here pay an MDR (Merchant Discount Rate) typically:
| Transaction value | Merchant category | MDR (paid by merchant) |
|---|---|---|
| ≤ ₹2,000 | Any | 0% (NPCI absorbs) |
| > ₹2,000 | Small merchant (turnover ≤ ₹50 lakh/year) | 1.0% |
| > ₹2,000 | Medium merchant (turnover ≤ ₹3 crore/year) | 1.5% |
| > ₹2,000 | Large merchant (turnover > ₹3 crore) | 2.0% |
For users, this is functionally identical to using your credit card at any POS — you pay nothing extra to the bank. But many merchants (groceries, kirana stores, petrol pumps) explicitly do not accept credit-on-UPI to avoid the MDR. So your cashback-rich RuPay credit card may not work everywhere your basic UPI works.
How merchants pass the cost back to you (sometimes)
Although merchants are not legally allowed to surcharge UPI transactions, in practice some do — particularly for credit-on-UPI:
- Some petrol pumps charge a 1% "convenience fee" on credit-on-UPI but accept regular UPI free.
- Some online merchants disable RuPay-on-UPI as a payment method, forcing you to a regular UPI app.
- Some smaller restaurants display "UPI accepted, credit cards extra" — and if you tap your phone with credit-on-UPI active, you may be charged.
This is in violation of RBI's no-surcharge rule, but enforcement is patchy. If charged, you can complain via the Banking Ombudsman portal.
Per-transaction limits in 2026
The default UPI per-transaction limit is ₹1,00,000 (₹1 lakh). NPCI has progressively raised limits for specific use cases:
| Use case | Per-transaction limit (2026) |
|---|---|
| Standard P2P, P2M | ₹1,00,000 |
| Capital markets (broker funding) | ₹5,00,000 |
| Insurance premium payment | ₹5,00,000 |
| Hospital and medical bills | ₹5,00,000 |
| Tax payments (income tax, GST) | ₹5,00,000 |
| Foreign inward remittance | ₹2,00,000 |
The bank you are sending FROM may impose a lower limit by default — typically ₹50,000 for new accounts, ₹1 lakh for established accounts. You can raise this in your bank's mobile app under UPI settings.
UPI Lite, UPI 123Pay, and other variants
UPI Lite
For frequent small transactions (≤ ₹500), UPI Lite stores funds in a dedicated balance on your UPI app, allowing payments without UPI PIN entry. Daily limit ₹4,000, single transaction ₹500. Free for users.
UPI 123Pay
For feature phones (no smartphone needed). Allows P2P and limited P2M via IVR / missed call. Same fee structure — free for users, no interchange.
UPI AutoPay
For recurring debits — Netflix subscription, EMI, mutual fund SIP. Set once, debits monthly automatically. Free; ₹15,000 default per-debit cap (raisable to ₹1 lakh for specific categories like mutual funds and insurance).
What changed in NPCI's 2026 circulars
Recent NPCI circulars in 2026 have focused on:
- Tighter rules on PPI wallet KYC — full KYC required for PPI balances above ₹50,000.
- Faster dispute resolution — banks must respond to UPI dispute requests within 24 hours (down from 48).
- Mandatory UPI integration for new bank account openings — making UPI the default rail.
- Cap on UPI app concentration — single app cannot exceed 30% market share, slowing PhonePe and GPay's dominance.
None of these directly raise user costs. The market-share cap might affect competition and feature pace but is invisible at the transaction level.
How to actually use UPI cost-effectively
- Pay merchants directly from your bank UPI (PhonePe, GPay, Paytm, BHIM all work) — never through a wallet load if you can avoid it.
- For credit card cashback, use credit-on-UPI only at large merchants (turnover > ₹50 lakh) where the MDR doesn't push them to refuse.
- For amounts above ₹1 lakh, use IMPS or NEFT — don't try to split UPI transactions.
- Check your bank's UPI limit setting if you encounter "daily limit exceeded" errors before reaching ₹1 lakh.
Disputes and refunds
For failed UPI transactions where money is debited but not credited, the issuing bank must auto-reverse within 1 working day. If not, file a complaint via your UPI app's "Help / Recent transactions" flow — NPCI's UPI Dispute Resolution Mechanism (DRM) handles it. Most disputes resolve in 3–5 days; some take up to 15.
For more on payment systems, see our IMPS, RTGS, and NEFT guides. For non-UPI transfers between accounts, our loan calculator and FD calculator use these rails for any actual money movement you initiate.
This article explains the fee mechanics. Always check the latest NPCI circulars for any policy changes specific to your use case, and consult a SEBI-registered financial advisor for fund movement decisions involving large sums.
Frequently Asked Questions
Is UPI completely free for users in 2026?
Yes for bank-account-funded UPI — both P2P and P2M. There are no transaction fees on standard UPI. Only PPI-funded merchant payments above ₹2,000 carry a 1.1% interchange, which is paid by the merchant, not by you.
Why does my UPI transaction sometimes fail above ₹50,000?
Your bank likely has a daily UPI limit set lower than NPCI's ₹1 lakh default. Open your bank's mobile app, go to UPI settings, and raise it. Note: the per-transaction limit is separate from your daily cumulative limit.
Can a merchant refuse to accept UPI?
Yes, accepting UPI is voluntary. But once a merchant displays a UPI QR code or claims to accept UPI, surcharging users is prohibited under RBI rules. Refusing only credit-on-UPI but accepting regular UPI is allowed.
What is the difference between UPI and IMPS?
UPI is mobile-first and uses a virtual payment address (yourname@bank). IMPS uses traditional account number + IFSC. UPI's free for users; IMPS may carry small bank fees. UPI's per-transaction default limit is ₹1 lakh; IMPS is ₹5 lakh.
Does using UPI affect my credit score?
UPI from a bank account does not affect your CIBIL — it's just a debit transaction. Credit-on-UPI (RuPay credit card on UPI) DOES affect your CIBIL, since it's a credit card swipe — repaying on time helps your score, missing payments hurts it.