India’s plan to impose a 0.4% fee on high-value UPI transactions above Rs 2,000 aims to sustain digital payment infrastructure, but official data suggests the move will only affect a small segment, with digital payments and cash continuing to grow side by side.
India’s plan to levy a merchant discount rate on some high-value UPI payments may nudge a slice of large transactions back towards cash, but it is unlikely to reverse the country’s broader shift to digital payments. According to the Economic Times report, only about 4% of person-to-merchant UPI transactions above Rs 2,000 in FY26, yet those transfers accounted for roughly two-thirds of the total value, suggesting the policy is aimed at a narrow but commercially important segment.
From October 15, the National Payments Corporation of India will apply a 0.4% fee on person-to-merchant UPI transactions above Rs 2,000, while person-to-person transfers and lower-value merchant payments will remain free. The New Indian Express reported that the Finance Ministry has said consumers will not pay the fee directly, because it falls within the merchant payment system rather than being added to the customer bill.
The case for the charge is being framed around sustainability. The Reserve Bank of India has backed the move, according to The Times of India, and CareEdge Ratings estimates that a merchant discount rate of 0.25% to 0.50% on selected high-value UPI payments could generate between Rs 15,000 crore and Rs 30,000 crore in gross revenue. The same analysis put the addressable pool at Rs 61.13 lakh crore in FY26, underlining how concentrated the value is in a relatively small band of transactions.
Even so, the wider payments picture still points to coexistence rather than substitution. The Economic Times said more than 95% of person-to-merchant transactions by volume remain below Rs 2,000 and will stay free, limiting the scope for a broad move back to cash. At the same time, currency in circulation rose 11.9% in FY26 even as UPI volumes and value kept climbing, showing that cash and digital payments can expand together. The clearest test will come after October 15, when changes in high-value UPI usage, cash withdrawals and other payment channels will show whether merchants and consumers begin to shift behaviour.
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