The Finance Ministry has rejected allegations that US pressure influenced India’s decision to introduce a 0.4 per cent Merchant Discount Rate on select UPI payments. The Department of Financial Services said the September 15 NPCI guidelines continue to allow only RuPay credit cards for credit transactions on UPI.
The Finance Ministry has rejected allegations that India introduced a new Merchant Discount Rate (MDR) on certain UPI payments because of pressure from the United States. The Department of Financial Services (DFS) said the claim was 'patently false and misleading' and maintained that the new UPI framework does not give international credit card networks an advantage over India’s RuPay system. The clarification comes after Opposition parties, including the Congress, questioned the timing and reasoning behind the new UPI charges. The debate has also been linked to observations in the US Trade Representative’s 2026 report about the ability of US electronic payment providers to participate in India’s UPI ecosystem.
What did the Finance Ministry say?
The DFS said the NPCI circular issued on September 15 does not permit credit transactions on UPI through international credit cards.
According to the ministry, only RuPay credit cards can currently be used for credit transactions on UPI. It said this is part of an existing policy intended to encourage RuPay as a domestic credit card option.
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This point is central to the government’s response to the US pressure allegations. The ministry argues that the new MDR framework does not open the UPI credit ecosystem to international card networks at the expense of RuPay.
The Finance Ministry’s position is that the decision should instead be viewed as part of India’s existing policy framework for digital payments.
Why has UPI MDR been introduced?
The new MDR framework was announced by the National Payments Corporation of India (NPCI) on September 15.
From October 15, a 0.4 per cent MDR will apply to specified person-to-merchant (P2M) UPI transactions above Rs 2,000. The charge will be paid by merchants rather than consumers. It will be capped at Rs 300 for transactions of Rs 75,000 or more.
The government and NPCI have said the move is intended to create a more sustainable financial model for the UPI ecosystem.
NPCI has also linked the decision to its earlier attempt to limit the market share of individual third-party application providers. Although a 30 per cent market-share ceiling was mandated in 2020, NPCI said smaller companies struggled to compete because there was no self-sustaining revenue model.
The new MDR, according to NPCI, is expected to give smaller domestic companies another source of revenue as they compete for a larger share of the UPI market.
Who will actually pay the 0.4 per cent MDR?
The new charge is aimed at selected merchant transactions rather than ordinary person-to-person payments.
The government has made clear that P2P UPI transactions will remain free, regardless of the amount transferred. Merchant payments of up to Rs 2,000 will also remain free. The government says around 96 per cent of merchant transactions will therefore remain unaffected.
Small merchants receiving up to Rs 1 lakh a month through UPI QR codes will also remain outside the new MDR framework.
For example, a merchant receiving a Rs 10,000 payment under the applicable category would face an MDR of Rs 40. However, the customer would not separately pay that amount as a UPI transaction fee.
Some sectors will have a flat Rs 5 charge
The framework also creates separate rates for certain essential services.
Transactions above Rs 2,000 involving categories such as railways, telecom, fuel and insurance will attract a flat Rs 5 MDR rather than the standard 0.4 per cent rate, according to the announced framework.
Capital-market transactions, including payments linked to mutual funds and stockbroking, will have a lower MDR of 0.02 per cent, with a maximum cap of Rs 300.
The government has also said that five per cent of MDR collections will go towards a dedicated fund aimed at expanding UPI acceptance among smaller merchants.
Why is the US angle being discussed?
The controversy follows concerns raised around India's UPI ecosystem and access for foreign payment companies.
The US Trade Representative's 2026 report had raised concerns about the inability of US electronic payment service providers to participate in parts of the UPI ecosystem on what it described as a level playing field with RuPay.
Against that backdrop, Opposition leaders have questioned whether external pressure played a role in India's decision to introduce MDR.
The Finance Ministry has rejected that interpretation.
Its response is that the September 15 NPCI guidelines do not give international credit cards an advantage over RuPay because credit-card transactions on UPI remain restricted to RuPay.
Government says UPI remains largely free
The government has also stressed that MDR is not a tax collected by the government or NPCI.
Instead, it is distributed among participants in the payment ecosystem, including banks and payment application providers, to support the operation and expansion of UPI.
The new system therefore marks a change from UPI's long-standing zero-cost model for most transactions, but the government maintains that the impact will be limited to specified higher-value merchant payments.
The central issue in the current political debate is whether the new MDR represents a domestic effort to make UPI financially sustainable or whether external trade concerns influenced the decision.
The Finance Ministry's answer is clear: it denies any US influence and says the policy is aimed at strengthening competition and sustainability within India's domestic digital payments ecosystem.
