UPI has changed more in 2026 than in the previous five years combined. A new merchant fee framework, higher limits for tax and medical payments, a mandatory second layer of authentication, and even a question about whether UPI transactions are now taxable have all landed within months of each other.
None of this is just banking trivia. Payment systems sit inside GST, taxation, and law, which means these changes show up as current affairs questions in CA exams. Here is what actually changed and why it matters for your preparation.
The New Merchant Fee From October 15, 2026
A Merchant Discount Rate, or MDR, of 0.4 percent now applies to person to merchant UPI transactions above Rs. 2,000. For transactions of Rs. 75,000 and above, the fee is capped at Rs. 300 per transaction.
The government and RBI have been explicit that merchants cannot pass this cost on to customers. Over 95 percent of everyday consumer UPI payments fall below the Rs. 2,000 threshold anyway, so they stay completely exempt.
Higher UPI Limits for Tax, Medical, and Education Payments
The standard UPI limit remains Rs. 1 lakh per transaction for regular person to person and merchant payments. NPCI and RBI have carved out a much higher limit for three specific categories.
Income tax and GST payments, hospital and medical bills, and educational institution fees can now be paid up to Rs. 5 lakh in a single UPI transaction. This is worth remembering since ICAI often builds MCQs around exactly these kinds of payment thresholds.
Are UPI Transactions Now “Chargeable”? The Amendment Act Confusion
The Taxation and Other Laws (Amendment) Act, 2026 triggered widespread confusion over whether UPI payments would now attract a charge. Several headlines implied ordinary users would start paying to use UPI.
The Ministry of Finance clarified through a PIB release that UPI users continue to pay zero charges. The MDR is a cost borne by the merchant accepting the payment, not a tax or fee on the person making it. Being able to tell the difference between a merchant side cost and a user side charge is exactly the kind of distinction ICAI tests in applied MCQs.
Two Factor Authentication Becomes Mandatory From April 1, 2026
Under RBI’s Authentication Mechanisms for Digital Payment Transactions Directions, 2025, every domestic digital payment, including UPI, must use two authentication factors from different categories starting April 1, 2026.
This is a useful example of RBI using its powers under the Payment and Settlement Systems Act to tighten security standards, a theme that regularly appears in Law and current affairs based questions.
Why This Belongs in Your Exam Prep
These are not separate facts to memorize in isolation. Together they illustrate how GST applicability, TDS and payment mechanisms, and RBI’s regulatory authority intersect in a single everyday system that almost every business now uses.
If you want to practice applying current developments like this to exam style questions, our CA Inter Sep 2026 Law paper analysis with MCQs is a good place to see how ICAI frames similar real world updates as questions. For structured revision on the underlying Tax and Law syllabus, our CA Inter RTP collection covers every attempt under the current syllabus. And if you are curious how AI fits into this bigger picture of the profession changing around you, our piece on the future of the CA profession in the AI era covers that in more depth.
Frequently Asked Questions
Do the new UPI charges apply to normal users making payments?
No. The Merchant Discount Rate applies only to merchants accepting payments above Rs. 2,000. Users continue to pay zero charges on UPI transactions.
What is the new UPI limit for income tax and GST payments?
Rs. 5 lakh per transaction, raised from the standard Rs. 1 lakh limit, and this higher limit also applies to hospital bills and education fees.
When does two factor authentication become mandatory for UPI?
From April 1, 2026, under RBI’s Authentication Mechanisms for Digital Payment Transactions Directions, 2025, covering all domestic digital payments including UPI.
Is this relevant for CA Inter or Foundation exams?
Yes. These changes touch GST, taxation, and RBI’s regulatory framework, all of which ICAI regularly tests through current affairs based MCQs and case studies.
Source: Ministry of Finance PIB release on UPI charges, RBI Authentication Mechanisms for Digital Payment Transactions Directions, 2025, and NPCI circulars on UPI, 2026.
