The Government of India has reaffirmed that no charges apply to UPI transactions for users. This policy, backed by RBI guidelines and government subsidy to payment service providers, ensures UPI remains free at the consumer end. The government compensates banks and payment apps through a dedicated incentive scheme. UPI processed over 18,000 crore transactions in FY2024, making it the world's largest real-time payment system. The zero-MDR regime on UPI and RuPay was formally introduced in January 2020.

UPI (Unified Payments Interface), launched in April 2016 by NPCI under RBI's regulatory oversight, operates on a zero Merchant Discount Rate (MDR) model for peer-to-peer and peer-to-merchant transactions. MDR is the fee a merchant pays to its bank for processing a digital payment — under normal card transactions, this fee is shared among the acquiring bank, issuing bank, and the payment network.

For UPI and RuPay debit cards, the government abolished MDR effective January 1, 2020, through the Finance Act 2019. This means merchants pay nothing, and users pay nothing. To prevent payment ecosystem collapse, the government introduced a PLI-style incentive scheme compensating banks and PSPs (Payment Service Providers) for foregone revenue.

From an RBI angle, this is a regulatory intervention in payment system pricing — the RBI has powers under the Payment and Settlement Systems Act, 2007 to regulate charges, interoperability, and access. The Payments Infrastructure Development Fund (PIDF), managed by RBI, further subsidises acceptance infrastructure in Tier-3 to Tier-6 cities and the North-East.

For UPSC, this connects to digital financial inclusion — UPI has become a key vehicle for Jan Dhan-Aadhaar-Mobile (JAM) trinity, enabling direct benefit transfer and reducing cash dependency. The no-charge policy lowers the barrier for low-income users and small merchants, directly serving welfare delivery goals.