No foreign influence behind decision to impose MDR on UPI transactions above Rs 2,000: Govt

New Delhi: The Finance Ministry on Wednesday clarified that there was no foreign influence behind the decision to impose 0.4 per cent Merchant Discount Rate on UPI transactions above Rs 2,000.

The clarification follows accusations by some opposition parties, including the Congress, that the government succumbed to US pressure in taking the decision to impose the Merchant Discount Rate (MDR).

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"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," the finance ministry said in a post on X.

Since its launch in 2016, UPI has grown into the world’s largest real-time interoperable payment system — entirely on India’s own terms, it said.

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 better infrastructure, cybersecurity and support for small merchants in Tier III–VI towns, the post said.

The new framework ensures resources from higher-value merchant transactions are reinvested to support small businesses and strengthen digital payments across the country, it added.

The ministry clarified that MDR is neither a tax nor a charge collected by the government or NPCI. It is distributed among payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI ecosystem.

The National Payments Corporation of India (NPCI), which operates the UPI network, said the revenue will support investment in infrastructure resilience, cybersecurity, fraud prevention, innovation and customer service.

From October 15, a 0.4 percent MDR will apply to person-to-merchant UPI payments above Rs 2,000. The charge will be paid by merchants, not consumers, and will be capped at Rs 300 for transactions of Rs 75,000 or more. Payments between individuals, as well as the vast majority of everyday merchant payments, will remain free.

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Essential services - railways, telecom, fuel and insurance - get a flat Rs 5 fee per transaction above Rs 2,000.

Capital markets transactions (mutual funds, stockbroking) get a lower 0.02 per cent rate, also capped at Rs 300.

Small merchants collecting up to Rs 1 lakh a month via UPI QR codes remain fully exempt from any new charge - a carve-out officials say shields about 96 per cent of all merchant transactions.

UPI QR payments to merchants in rural and semi-urban areas will also remain free. Five per cent of MDR collections will go into a dedicated fund intended to expand UPI acceptance among small merchants.

UPI in full FY2025-26 handled 24,161.69 crore transactions worth roughly Rs 314 lakh crore, according to Ministry of Finance data. this is higher from 1.78 crore transactions worth Rs 0.07 lakh crore in FY2016-17, the year UPI was launched. The number of banks live on the platform rose from 44 to 703 over the same period.

Earlier during the day, government sources said there was no question of a re-think on the issue of imposition of MDR.

A top official, when asked whether the government was considering to roll back the proposed MDR, said a decision has been taken and there was no question of reversing it.

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