The Finance Ministry on Thursday (September 17) rejected allegations that US pressure influenced the decision to introduce a 0.4% Merchant Discount Rate (MDR) on select UPI transactions, saying the latest NPCI guidelines do not provide any advantage to international credit cards over RuPay on the UPI platform.
The Department of Financial Services (DFS) issued the clarification in response to observations in the US Trade Representative’s (USTR) 2026 report, which raised concerns over the inability of US electronic payment service providers to participate in India’s UPI ecosystem, including credit transactions on UPI, on a level playing field with RuPay.
The DFS said the NPCI circular issued on September 15 does not permit credit transactions on UPI through credit cards other than 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,” the DFS said.
It added that there is a clear policy of allowing only RuPay credit cards on UPI to promote RuPay as the preferred credit card among Indian users.
“The allegation that MDR has been introduced under any external influence is patently false and misleading,” the department said.
The clarification comes amid allegations from some Opposition parties, including the Congress, that the government had introduced the 0.4% MDR following pressure from the US.
The Finance Ministry said the NPCI decision is part of an existing policy framework under which only RuPay credit cards can be linked to UPI for credit transactions.
NPCI had issued a circular on September 15 introducing MDR on select UPI transactions as part of efforts to create a sustainable revenue framework for the digital payments ecosystem.
On the issue of market share, NPCI said it had mandated a 30% ceiling for third-party application providers (TPAPs) in November 2020. However, implementation of the cap was difficult because smaller companies were unable to compete with market leaders 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,” NPCI said.
The organisation said the move is intended to allow more domestic companies to expand their operations and described it as a measure aimed at protecting India’s sovereignty in the electronic payments ecosystem.
From October 15, a 0.4% MDR will apply to person-to-merchant UPI payments above ₹2,000. The charge will be paid by merchants rather than consumers and will be capped at ₹300 for transactions of ₹75,000 or more.
Payments between individuals and most everyday merchant transactions will continue to remain free.
For essential services such as railways, telecom, fuel and insurance, a flat ₹5 fee will apply to transactions above ₹2,000.
Capital market transactions, including mutual funds and stockbroking payments, will attract a lower 0.02% MDR, also capped at ₹300.
Small merchants collecting up to ₹1 lakh a month through UPI QR codes will remain exempt from the new charge.
Officials said the exemption is expected to cover about 96% of all merchant transactions.
UPI QR payments to merchants in rural and semi-urban areas will also remain free.
