UPI (Unified Payments Interface) is often promoted as a completely free digital payment system for consumers. While the Indian government and NPCI continue to state that UPI transactions themselves carry zero charges, a subtle shift by banks is changing the real cost for everyday users. Several banks have moved from flat SMS alert fees to a per-SMS charging model, quietly impacting people who make frequent small-value UPI payments.
If you regularly pay ₹1, ₹5, or ₹10 for tea, parking, or groceries using UPI, these hidden SMS charges may end up costing you more. Here’s a clear FAQs-style breakdown of what’s happening, why banks are doing this, and how you can avoid unnecessary charges.
Frequently Asked Questions (FAQs)
Is UPI officially free for customers?
Yes. UPI transactions are free as per NPCI and government guidelines. Banks are not charging for the transaction itself. However, they are charging for SMS alerts sent after each transaction, which indirectly increases your cost.
What has changed in bank charges recently?
Earlier, most banks charged a flat quarterly fee of around ₹12–₹15 for SMS alerts. In 2025–2026, many banks shifted to a Pay-per-SMS billing model, charging customers for each transaction alert.
Which banks are charging per SMS?
Abhyudaya Bank: Around 18 paise per SMS
Kotak Mahindra Bank: 15 paise per SMS after 30 free messages per month for accounts that do not maintain the required balance
Know your bank Free SMS Limit and per SMS charges calling customer care
How does this impact frequent UPI users?
Every UPI payment triggers an “Amount Debited” SMS. If you make 5–10 small transactions daily, these SMS charges can add up to ₹20–₹40 per month or more, often going unnoticed unless you check your statement carefully.
Can SMS charges cause minimum balance penalties?
Yes. If you maintain only the exact minimum balance in your account, repeated SMS alert charges from UPI or debit transactions can quietly reduce your balance below the required limit. Once this happens, the bank may levy a Non-Maintenance of Minimum Balance (NMMB) charge, which is usually much higher than the SMS charges themselves. To avoid this, keep a small buffer above the minimum balance or switch frequent small payments to UPI Lite.
Why are banks introducing per-SMS charges?
Banks state that the explosion of low-value UPI transactions has increased operational costs. Since telecom providers charge banks for every SMS sent, banks are now passing this cost on to customers who generate high transaction volumes.
Is there a way to use UPI without paying SMS charges?
Yes. The most effective solution is using UPI Lite, which is designed specifically for small-value daily transactions.
What is UPI Lite?
UPI Lite is an on-device wallet that allows small payments without requiring a PIN for every transaction and without triggering SMS alerts for each payment.
Why is UPI Lite the best option?
• No SMS per transaction
• Cleaner bank statements (only wallet top-ups appear)
• Faster payments without repeated PIN entry
• Ideal for tea, snacks, groceries, and transport payments
How to activate UPI Lite on PhonePe?
Open PhonePe → Tap Profile Picture → Select UPI Lite → Enable/Add Money → Enter amount → Authorize with UPI PIN
Once activated, choose UPI Lite for payments under ₹500.
How to activate UPI Lite on Google Pay?
Open Google Pay → Tap Profile Picture → Select “Pay PIN-free UPI Lite” → Choose bank → Add money → Enter UPI PIN
GPay will automatically suggest UPI Lite for small payments.
How to activate UPI Lite on Paytm?
Open Paytm → Search or scroll to UPI Lite → Tap Activate → Select bank → Add money → Enter UPI PIN
Small payments will now be deducted from the Lite balance.
What are the limits on UPI Lite?
• Per transaction limit: ₹500 or ₹1,000 (varies by app)
• Wallet balance limit: ₹2,000 (some apps allow up to ₹5,000)
• Daily spending limit: ₹4,000 to ₹10,000 depending on app and bank
Does money in UPI Lite earn interest?
No. The amount stored in UPI Lite does not earn interest. It is best used only for short-term daily expenses.
Are there other ways to reduce SMS charges?
• Use free monthly SMS quota wisely
• Maintain minimum balance to waive charges (where applicable)
• Opt for email alerts or app notifications instead of SMS, if supported
Conclusion
While UPI remains a revolutionary and officially free payment system, banks are increasingly recovering costs through per-SMS alert charges, especially affecting users who make frequent low-value payments. These small deductions may seem insignificant but can quietly add up over time.
By switching daily micro-payments to UPI Lite and reserving regular UPI for larger transfers, you can continue enjoying digital convenience without unnecessary charges. Understanding these hidden costs and using the right tools ensures that UPI truly stays as affordable as it was meant to be.
