Finance Ministry Affirms UPI MDR Policy Independence Amid Influence Claims

India's Finance Ministry has firmly clarified that the new 0.4% Merchant Discount Rate (MDR) on UPI transactions exceeding Rs 2,000 is an independent policy decision aimed at fostering a self-sustaining digital payments ecosystem. This statement directly refutes allegations of foreign influence that have surfaced following the announcement of the MDR.

The clarification was issued in response to accusations from some opposition parties, including the Congress, which claimed that the government had succumbed to pressure from the United States in implementing this policy. The ministry stated, "Some claims suggest the change is due to foreign influence. This is false. India's UPI policy decisions are made independently, with the clear goal of building a self-sustaining, inclusive, and affordable digital payments ecosystem."

Since its launch in 2016, the UPI has developed into the world's largest real-time interoperable payment system, operating entirely on India's own terms. In August 2026 alone, UPI processed 24.5 billion transactions. The ministry explained that to maintain this system's sustainability, security, and innovation, a small fee on high-value merchant transactions is necessary to fund better infrastructure, cybersecurity, and support for small merchants in Tier III-VI towns.

The new framework ensures that resources from higher-value merchant transactions are reinvested to bolster small businesses and enhance digital payments across the country. The ministry clarified that the MDR is neither a tax nor a charge collected by the government or the National Payments Corporation of India (NPCI). Instead, it is distributed among payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI ecosystem.

Revenue Allocation for UPI Network Enhancements

The NPCI, which operates the UPI network, stated that the revenue generated will support investments in infrastructure resilience, cybersecurity, fraud prevention, innovation, and customer service. Starting October 15, a 0.4% MDR will apply to person-to-merchant UPI payments above Rs 2,000. This charge will be borne by merchants, not consumers, and will be capped at Rs 300 for transactions of Rs 75,000 or more. Payments between individuals and the majority of everyday merchant payments will remain free.

Case Closed

Essential services such as railways, telecom, fuel, and insurance will incur a flat Rs 5 fee per transaction above Rs 2,000, while capital markets transactions will have a lower rate of 0.02%, also capped at Rs 300. Small merchants collecting up to Rs 1 lakh a month via UPI QR codes will remain fully exempt from any new charges, which officials say protects about 96% of all merchant transactions. UPI QR payments to merchants in rural and semi-urban areas will also continue to be free. Additionally, 5% of MDR collections will be allocated to a dedicated fund aimed at expanding UPI acceptance among small merchants.

In the fiscal year 2025-26, UPI handled 24,161.69 crore transactions worth approximately Rs 314 lakh crore, a significant increase from 1.78 crore transactions worth Rs 0.07 lakh crore in FY2016-17, the year UPI was launched. The number of banks participating in the platform rose from 44 to 703 during this period. Earlier in the day, government sources reiterated that there would be no reconsideration of the MDR imposition, emphasizing that a decision has been made and there is no question of reversing it.