Centre Rejects ‘External Pressure’ On UPI Fee, Says 0.4% Charge Is Needed For Sustainability

Centre rejects Congress' claim of US pressure behind UPI MDR, saying the new 0.4% fee targets select merchant payments to sustain the system.

The MDR was introduced to strengthen UPI's long-term sustainability and fund continued investment in infrastructure, cybersecurity, and fraud prevention. This ensures the system remains self-sustaining and innovative.

Source : pixabay

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Key points generated by AI, verified by newsroom

• India rejects claims of foreign pressure on UPI charges.
• New policy targets high-value merchant transactions for sustainability.
• Most customers, small merchants, P2P payments remain unaffected.
• Opposition questions policy motives; government dismisses allegations.

The Centre on Wednesday rejected allegations that US pressure influenced India's decision to introduce a Merchant Discount Rate (MDR) on certain high-value UPI payments, saying the policy has been framed independently to strengthen the long-term sustainability of the country's digital payments infrastructure.

The clarification came amid a political dispute over the government's decision to introduce a 0.4% MDR on specified person-to-merchant transactions above Rs 2,000 from October 15. The new framework does not impose charges on person-to-person payments, while a large majority of merchant transactions will continue without MDR.

Centre Rejects Pressure Claim

The Ministry of Finance described suggestions of foreign influence behind the policy change as unfounded and said decisions relating to UPI are taken independently.

The government said UPI was created in India and has developed into the world's largest real-time interoperable payments system. It argued that the enormous expansion in transaction volumes has created a need for continued investment in infrastructure, cybersecurity, fraud prevention and other areas.

The Ministry said, "UPI continues to be free for customers. Sending money to friends, paying at shops, or scanning a QR code — all remain without charges. 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."

It further said, "Since its launch in 2016, UPI has grown into the world's largest real-time interoperable payment system — entirely on India's own terms. UPI processed 24.5 billion transactions in August 2026 alone. To keep this system self-sustainable, secure and innovative, a small fee on high-value merchant transactions helps fund."

🔰 UPI Remains Free for Consumers

UPI continues to be free for customers. Sending money to friends, paying at shops, or scanning a QR code — all remain without charges.

Key Facts:
✅ No charges on P2P: Person-to-Person transfers are always free, regardless of amount.
✅ Small… pic.twitter.com/PyQ7hotNMN

— Ministry of Finance (@FinMinIndia) September 16, 2026

 

The government's August statement had similarly rejected reports of external influence, saying the changes were intended to create a sustainable revenue model for the expanding payments ecosystem.

Who Will Pay MDR?

Under the new framework, the MDR will apply to specified person-to-merchant transactions exceeding ₹2,000. The rate has been set at 0.4%, with the charge distributed among participants in the payments ecosystem rather than collected by the government as a tax.

Transactions of ₹75,000 and above will have the MDR capped at ₹300 per transaction. Certain essential sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will instead attract a flat ₹5 MDR for transactions above ₹2,000.

The framework specifically keeps person-to-person payments outside the MDR regime. The government has also directed that customers should not be charged the MDR, while UPI platforms have been barred from imposing platform fees or hidden charges on users.

Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the specified zero-MDR framework will also remain protected.

Most Merchant Payments Exempt

The Centre has maintained that the change will have a limited reach among existing UPI transactions.

According to the latest government data, around 96% of person-to-merchant transactions will remain unaffected because they either fall below the ₹2,000 threshold or qualify for the zero-MDR framework applicable to small merchants.

The government has presented the framework as an attempt to create a revenue mechanism for maintaining and expanding UPI without imposing a direct transaction charge on individual users.

The change follows an amendment to the Payment and Settlement Systems Act that enabled the government to prescribe payment-system charges under specified circumstances. NPCI subsequently announced the detailed MDR framework after deliberations through the UPI Steering Committee.

Congress Questions Motive

The government's explanation has been challenged by the Congress, which has alleged that external considerations may have played a role in the policy shift.

Congress general secretary Jairam Ramesh questioned whether the 0.4% MDR could create greater space for international card networks to compete with UPI. He linked the issue to wider tensions between India and the US, including proposed American tariff measures concerning countries that continue significant trade in Russian energy and changes affecting Indian professionals seeking to work in the US.

Ramesh has also questioned the government's argument that MDR is required to make UPI financially sustainable. He estimated the annual cost of running the UPI ecosystem at around ₹20,000 crore and compared that figure with transfers made by the Reserve Bank of India to the Union government in recent years.

The questions from Congress therefore centre on both the rationale for introducing MDR and the circumstances surrounding the departure from the earlier zero-MDR model.

BJP Hits Back

The BJP has rejected the Congress allegations and accused the opposition of spreading "fake news".

The ruling party has pointed to the government's assurance that customers will not be required to pay MDR for their UPI transactions. Under the new framework, individuals can continue making person-to-person payments without a transaction charge, irrespective of the amount transferred.

The dispute now centres on how the new merchant-level fee will affect India's rapidly expanding digital payments ecosystem, while the government maintains that the framework is designed to preserve UPI's affordability for users and smaller businesses.