Magento 1.8 – Zero Subtotal Payment Method Not Showing in Checkout

Each of the various Credit Card payment methods which Magento includes out-of-the-box include a Minimum Order Total setting. If you set this to a penny (0.01) the method should no longer show up when the value of the cart has a zero subtotal and since there would only be a single payment method now available, it would eliminate the need for the customer to choose one.

Note: I've not tested this, so can't personally say whether or not it will for certain work, but I don't see why it wouldn't. Let me know if it does! :)

Do this using event observer.....create an event on payment_method_is_active and depends on grandtoatal group disable and enable payment method:

See there.Implementing payment method per currency

And you need change on observer.

  <?php
    class Bh_ZeroSubtotalpaymentmethod_Model_Observer {

        public function filterpaymentmethod(Varien_Event_Observer $observer) {
            /* call get payment method */
        $method = $observer->getEvent()->getMethodInstance();

    $quote = $observer->getEvent()->getQuote();
    /* this condition will disable rest of  payment method if grandtotal  <= 0 */
        if($method->getCode()!='free' && (Mage::app()->getStore()->roundPrice($quote->getGrandTotal())<=0))
        {   

            $result = $observer->getEvent()->getResult();   
            $result->isAvailable = false;

            return;
        }
    /* this condtion prevent zero payment to display when grandtotal greater then 0 */
        if($method->getCode()=='free'){
            $quote = $observer->getEvent()->getQuote();
            if(Mage::app()->getStore()->roundPrice($quote->getGrandTotal())>0){
            $result = $observer->getEvent()->getResult();   
            $result->isAvailable = false;
            return;
            }
        }
        return;
      }
    }