The Finance Ministry on Thursday rejected allegations that US pressure influenced the decision to levy a 0.4 per cent Merchant Discount Rate (MDR) on select UPI transactions, saying the latest NPCI guidelines offer no advantage to foreign credit cards over RuPay.
The Department of Financial Services (DFS) issued the clarification in response to observations in the US Trade Representative's (USTR) 2026 report on the inability of US electronic payment service providers to participate in the UPI ecosystem, including credit transactions, on a level playing field with RuPay.
"The NPCI circular of September 15, 2026, does not allow credit transactions on UPI by any other credit card other than the RuPay credit card.
There is a clear policy of only allowing RuPay credit card on UPI to enable RuPay credit card to become the preferred choice of credit card amongst users in India," the DFS said in a post on X.
"The allegation that MDR has been introduced under any external influence is patently false and misleading," it added.
The clarification came amid allegations by Opposition parties, including the Congress, that the government had succumbed to US pressure in introducing the 0.4 per cent MDR on UPI transactions above Rs 2,000.
The Finance Ministry said the NPCI decision was in line with an existing policy that allows only RuPay credit cards to be linked to UPI for credit transactions.
The NPCI, which operates the UPI platform, issued the circular on September 15, introducing MDR on select transactions from October 15 to create a sustainable revenue model for the digital payments ecosystem.
On the 30 per cent market share ceiling for third-party application providers, NPCI said the mandate introduced in November 2020 could not be implemented as smaller companies were unable to compete in the absence of a self-sustaining revenue model.
"Introduction of MDR on select high-value transactions will provide a self-sustaining revenue model to smaller companies to compete for a higher share in the UPI ecosystem.
Thus, the introduction of MDR has been done with the intention of allowing more domestic companies to expand their operations," it said.
NPCI said the move would help expand the participation of domestic companies in the UPI ecosystem and protect India's sovereignty in the electronic payments space.
It also said the government had promoted RuPay credit and debit cards to provide users with a domestic alternative. While RuPay credit cards continue to grow, debit card transactions have been kept free of MDR, it added.
From October 15, a 0.4 per cent MDR will apply to person-to-merchant UPI payments above Rs 2,000. The charge will be paid by merchants, not consumers, and capped at Rs 300 for transactions of Rs 75,000 or more.
Person-to-person payments and most everyday merchant transactions will remain free.
Essential services such as railways, telecom, fuel and insurance will attract a flat Rs 5 fee per transaction above Rs 2,000. Capital market transactions, including mutual funds and stockbroking, will attract a lower 0.02 per cent rate, also capped at Rs 300.
Small merchants collecting up to Rs 1 lakh a month through UPI QR codes will remain exempt from the charge. Officials said the exemption covers 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 be allocated to a dedicated fund to expand UPI acceptance among small merchants.
(With inputs from PTI)
