India will introduce a 0.4% fee on Unified Payments Interface (UPI) business transactions over Rs2,000 ($20) in November. Person-to-person transfers and small merchant payments will be exempt. The charge could weaken UPI's popularity and accelerate merchants' shift toward cash. The fee changes the zero-charge model that was central to UPI's rapid growth.
The National Payments Corporation of India, which operates UPI, says the fee will help cover the system's Rs200 billion ($2.1 billion) annual maintenance costs. Dozens of banks collectively own the operator. UPI also receives government subsidies, which totalled Rs20 billion for the current financial year. Polling agency Local Circles surveyed 32,000 businesses across India and found that 83% of merchants were unwilling to bear the extra costs.
About eight in 10 purchases at Care Chemist pharmacy in Mumbai are digital, using the fast, cheap, state-backed system. Manager Mushtaq Ahmed expects to handle far more cash soon. Ahmed said the charge would push prices above what customers were willing to pay. Ahmed said the pharmacy could not sell medicines above printed prices. Ahmed said the pharmacy would accept cash, cards or cheques, or split charges into smaller amounts to avoid the surcharge.
UPI has become the world's most widely adopted digital payments interface since launching in 2016. The platform processed roughly 242 billion transactions in the latest financial year, nearly 12,000 times the volume in the first full year of operation. Phone scans have simplified business transactions and made UPI a preferred method for vendor services, groceries, restaurant bills and money transfers.
Prime Minister Narendra Modi withdrew large-denomination banknotes in 2016 to combat corruption and tax evasion. The withdrawal removed about 90% of India's physical currency by value from circulation. However, notes and coins have continued to flourish alongside digital payments. The Reserve Bank of India (RBI) puts currency in circulation at a record Rs42.7 trillion ($448 billion) at the end of September 2026. The RBI figure is about 2.3 times the amount before demonetisation. India's cash-to-GDP ratio has returned to about 12%, the level of a decade ago and one of the highest among major economies.
RBI deputy governor Shirish Chandra Murmu said currency in circulation continued to grow at double-digit rates even as digital adoption reduced cash's share of individual transactions. Murmu described the combination as a "cash paradox". Bank of Baroda chief economist Madan Sabnavis said the shadow economy drove much of India's cash demand. Sabnavis said demonetisation had prompted expectations that cash in circulation and unaccounted money would decline. However, Sabnavis said cash remained attractive because cash offered anonymity for bribes, illicit political spending, real estate transactions and goods and services tax avoidance. Sabnavis said people had accumulated increasing amounts of cash.
Anush Raghavan, chief business officer at CMS Info Systems, India's largest cash management company, said UPI and cash use had grown together. Raghavan said UPI had captured a large share of small everyday payments. Raghavan said RBI estimates showed cash still funded more than half of consumer spending. Raghavan said more households also held cash as a reserve. Experts said increased scrutiny of digital transactions had alarmed merchants and small businesses. A State Bank of India report this year found that many small businesses and traders switched to cash-only payments after tax officers examined thousands of UPI transactions.
Madhavi Arora, chief economist at Emkay Global Financial Services in Mumbai, projected 12% growth in India's currency in circulation during the current financial year. Arora attributed part of the projected growth to rising inflation. Inflation accelerated to a two-year high of 5.5% in September from 4.82% in August. Arora also cited recurring state elections, during which political parties distribute large amounts of cash to entice prospective voters. Uttar Pradesh, India's most populous state, is due to hold elections in February 2027. Arora said cash was making a comeback.
India Introduces 0.4% Fee on UPI Business Transactions Over Rs2,000
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Summary
India introduces a 0.4% fee on UPI business transactions over Rs2,000 from November, impacting on-chain news and ecosystem growth. Person-to-person transfers and small merchants are exempt. The fee replaces UPI’s zero-cost model, which fueled its rise to 242 billion transactions in the last financial year. The National Payments Corporation of India says the charge will cover Rs200 billion in annual costs. A survey of 32,000 businesses found 83% of merchants oppose the fee.
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