Govt says UPI MDR won’t boost cash use:0.4% charge on payments above ₹2,000; merchants told not to pass it on to customers, monitoring to be done

The Finance Ministry on Thursday once again rejected allegations that the US pressured India to impose MDR on UPI transactions. It also said the move is not expected to increase cash transactions. From October 15, a 0.4% MDR will be charged on person-to-merchant UPI payments above ₹2,000. For transactions of ₹75,000 and above, the charge will be capped at ₹300. The fee will be collected from merchants, not customers. Person-to-person payments and most everyday merchant payments will remain free. According to the Finance Ministry, the decision will affect only 4% of the total volume of UPI transactions. Therefore, UPI transactions are unlikely to decline or cash transactions to increase significantly. News agency PTI, citing government sources, reported that a system will be put in place to monitor that merchants do not pass the higher charge on to customers. Claim- MDR introduced without external pressure, government says The Department of Financial Services (DFS) issued the clarification in response to concerns raised in the US Trade Representative’s (USTR) 2026 report. The report said US electronic payment service providers were not being given a level playing field in the UPI system. The report also raised concerns that US companies were not being given equal opportunities compared with RuPay in credit transactions on UPI. In a post on X, the DFS said, “The NPCI circular dated September 15 does not permit credit transactions on UPI through any credit card other than RuPay credit cards.” The department said, “There is a clear policy of linking only RuPay credit cards with UPI to make RuPay credit cards the preferred choice among people in India.” The DFS described the allegation that MDR was introduced due to external pressure as “completely false and misleading”. Cash transactions unlikely to increase According to sources, UPI transactions are not expected to decline after MDR is introduced. The decision will affect only 4% of the total transaction volume. On concerns that cash transactions could increase after October 15, sources said this was unlikely. Transactions through RuPay debit cards remain completely free, regardless of the amount. Claim- No significant impact on inflation expected The Finance Ministry is developing a system to ensure that the burden of UPI MDR is not passed on to customers. This is aimed at addressing concerns that merchants may recover the charge from customers. The ministry has started discussions with payment aggregators and other stakeholders linked to UPI. They are being informed about the MDR and asked not to pass the cost on to customers. On concerns that the move could lead to higher prices of goods and services, sources said it was unlikely to have any impact on inflation. What did the US report say? The US Trade Representative’s 2026 National Trade Estimate Report referred to barriers related to foreign trade. According to the report, the US raised concerns over formal and informal policies related to electronic payment services. It said these policies appeared to favour Indian domestic companies and did not provide a level playing field for foreign companies. The US also raised concerns over the participation of US electronic payment service providers in the UPI system, including their participation in UPI credit transactions on an equal footing with RuPay. The US also said that in November 2020, NPCI set a 30% market-share cap for third-party app providers initiating online UPI payments. The cap is based on the number of transactions. ​