New Delhi: The Union finance ministry is working on a monitoring mechanism to ensure that merchants do not pass on the Merchant Discount Rate (MDR) applicable to certain Unified Payments Interface (UPI) transactions to consumers, according to sources cited in a PTI report.
The move comes ahead of the implementation of a 0.4% MDR on select UPI payments, with the government maintaining that the charge will be borne by merchants and not customers.
According to the sources, the ministry has initiated discussions with payment aggregators and other stakeholders in the UPI ecosystem to raise awareness about the new framework and ensure compliance with the guidelines.
The National Payments Corporation of India (NPCI), which operates the UPI platform, issued a circular on Sept. 15 outlining the introduction of MDR on certain transactions as part of efforts to establish a sustainable revenue model for the digital payments ecosystem.
Under the new framework, a 0.4% MDR will apply to person-to-merchant UPI transactions exceeding ₹2,000 from Oct. 15. The charge will be capped at ₹300 for transactions worth ₹75,000 or more.
However, person-to-person payments and the majority of routine merchant transactions will continue to remain free.
Govt Rejects Claims Of US Influence On MDR Decision
The Department of Financial Services (DFS) on Thursday rejected allegations that the decision to introduce MDR was influenced by pressure from the United States.
In a post on X, the department said the latest NPCI guidelines do not provide international credit cards with any advantage over RuPay and reiterated that the policy was not introduced under external influence.
The clarification came in response to concerns raised in the US Trade Representative’s (USTR) 2026 National Trade Estimate Report regarding the participation of US electronic payment service providers in India’s UPI ecosystem.
Few allegations are in the media that the MDR has been introduced because of external pressure. They are giving reference to US Trade Representative (USTR) report of 2026. The USTR report has raised the following two issues:
(i) Inability of US electronic payment services… pic.twitter.com/iZ2qRPimfk
— DFS (@DFS_India) September 17, 2026
The DFS said the NPCI circular does not permit credit transactions on UPI through credit cards other than RuPay.
It stated that the policy was intended to promote RuPay credit cards and make them the preferred choice among Indian consumers.
“The allegation that MDR has been introduced under any external influence is patently false and misleading,” the department said.
The clarification followed allegations by some Opposition parties, including the Congress, that the government had yielded to US pressure while introducing the 0.4% MDR on select UPI transactions.
The USTR’s 2026 report had raised concerns over policies governing electronic payment services in India, claiming that certain measures appeared to favour domestic providers over foreign competitors.
The report also flagged the inability of US payment service providers to participate in UPI-based credit transactions on terms comparable to RuPay.
Govt Does Not Expect Shift Towards Cash Payments
According to sources cited in the PTI report, the government does not anticipate a significant decline in UPI usage following the introduction of MDR.
The sources said only around 4% of total UPI transaction volumes would be affected by the new framework, limiting its overall impact on digital payments.
They also pointed out that transactions made using RuPay debit cards would remain completely free, regardless of the transaction amount.
The sources further dismissed concerns that the new levy could contribute to inflation, maintaining that the policy was unlikely to have a significant impact on prices.
The government is now focusing on ensuring that the new charges are implemented without creating an additional financial burden for consumers.
