UPI MDR Row: Centre Rejects Foreign Influence Claims, Says Person to Person Transfers Still Free

The Centre on Wednesday rejected opposition claims that the introduction of a Merchant Discount Rate (MDR) on certain UPI transactions was driven by foreign influence, including pressure from the United States, and said India's UPI policy decisions were made independently.

The Finance Ministry said UPI would remain free for consumers, while a 0.4% MDR would apply from October 15 to specified person-to-merchant (P2M) transactions above ₹2,000. The charge will be paid by merchants and capped at ₹300 per transaction.

"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 ministry said.

What Is The New UPI MDR?

Under the new framework, a 0.4% MDR will apply to specified P2M UPI transactions above ₹2,000 from October 15.

For example, a merchant receiving a ₹10,000 UPI payment would pay ₹40 as MDR. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.

The government has clarified that MDR is not a tax collected by the government or NPCI. It is distributed among participants in the payment ecosystem, including banks and payment service providers.

Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category will continue to get zero MDR. The Finance Ministry said around 96% of P2M transactions would remain unaffected.

Person-to-Person UPI Free

The Centre reiterated that person-to-person (P2P) UPI transfers will remain completely free, irrespective of the amount transferred.

Payments to merchants up to ₹2,000 will also remain free. Banks have been advised to ensure that merchants do not pass the MDR cost on to customers.

This means consumers will continue to pay no separate charge when sending money to another person or making eligible payments at shops by scanning a UPI QR code.

Opposition Alleges US Card Companies Could Benefit

The Congress has opposed the introduction of MDR and alleged that the move could benefit US-based card companies by making UPI less attractive to merchants.

Congress Rajya Sabha MP Jairam Ramesh questioned the 0.4% rate and whether it was linked to the MDR applicable to debit cards. He also alleged that the government had responded to a US demand to end zero MDR on UPI.

Ramesh cited earlier criticism of India's zero-MDR UPI model by the US Trade Representative to support his claim.

The Centre, however, has rejected the allegation of foreign influence and said the decision was taken independently as part of efforts to ensure the long-term sustainability of the UPI ecosystem. The government had also said in August that any future MDR would be limited to specified merchant transactions and would not result in charges for consumers.