Major UPI Changes & Charges in 2025: What the Government of India Has Introduced

In 2025, the Indian government and the National Payments Corporation of India (NPCI) have introduced a new structure for transaction charges on UPI payments, but there’s been a lot of confusion around who it affects and what’s actually changing. Here's a breakdown to make things clear:

Are UPI Payments Still Free?

Yes—for most users, UPI continues to remain free.

There are no charges for:

• Peer-to-peer (P2P) payments (sending money to friends, family, etc.)

• Regular UPI payments from your bank account to merchants

• Bill payments or QR code scans made from a bank-linked UPI app

So Where Are Charges Being Applied?

The new charges apply only to merchant transactions using Prepaid Payment Instruments (PPIs)—such as UPI-linked wallets (like PhonePe Wallet, Paytm Wallet, etc.).

Here’s what that means:

• If a customer uses a UPI-linked wallet to make a merchant payment over ₹2,000, an interchange fee of up to 1.1% may apply.

• This fee is paid by the merchant, not the customer.

• Peer-to-peer (P2P) wallet payments are not affected.

Example: If you use a PhonePe Wallet (loaded with money) to pay ₹2,500 to a large retail store, the store may have to pay a small fee (₹27.5) to the payment provider.

Why Was This Fee Introduced?

UPI has grown massively—but it's also expensive to maintain for banks and fintechs. The new fee structure:

• Creates a sustainable business model for UPI-based wallet transactions.

• Encourages wider use of wallet infrastructure, especially for offline and microtransactions.

• Ensures that the cost is borne by large merchants, not by small businesses or consumers.

Does This Affect You as a Customer?

In most cases, no. Here's why:

• You can continue using your bank account via UPI for free.

• Even if you're using a wallet, you won’t be charged—the merchant handles the fee.

• Small vendors, street hawkers, and local stores are typically not affected.

Key Takeaways

• Regular UPI payments remain free for customers.

• A small interchange fee (up to 1.1%) is applied to merchant payments made using UPI wallets, not bank accounts.

• The fee is only for merchants, not individual users.

• This move supports the long-term sustainability of UPI infrastructure.

UPI is still the most convenient and cost-effective way to pay in India—and with these new changes, it's aiming to balance innovation with a viable economic model for the ecosystem.

Source: AI Generated Content