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Government says UPI MDR aims for sustainability, competition, not pressure
The government wants UPI to earn enough money to keep operating and growing.
It says the new charges were not introduced because of pressure from the United States.
Most person-to-person UPI payments will still be free.
Merchant payments up to Rs 2,000 will also remain free.
Some larger merchant payments will have a 0.4% charge.
The government says this could help smaller Indian payment companies compete.
It also plans to promote BHIM UPI, which currently has less than 1% of the market.
Officials are examining whether GST rules could create extra difficulties for some businesses.
The government denied that UPI’s selective MDR reintroduction resulted from U.S. trade pressure.
A 0.4% MDR will apply to specified merchant payments above Rs 2,000, while person-to-person payments remain free.
The government said about 96% of person-to-merchant transactions will remain unaffected.
PhonePe and Google Pay together process nearly 80% of UPI transaction volume.
The new revenue model could replace a Rs 2,000 crore UPI subsidy planned for FY27.
- Who
- The Department of Financial Services, the National Payments Corporation of India, payment companies, merchants, and UPI users.
- What
- The government defended introducing Merchant Discount Rate charges on selected high-value UPI merchant transactions.
- Where
- India’s Unified Payments Interface ecosystem.
- When
- The clarification was issued on Thursday; the article cites UPI data for August 2026 and a USTR report for 2026.
- Why
- The government says MDR is intended to make UPI financially sustainable and give smaller domestic payment companies room to compete.
Government position
External-pressure allegation
Reason for introducing MDR
Government position
The Department of Financial Services says MDR is designed to create a self-sustaining UPI revenue model, help smaller domestic companies compete, and support continued digital payments.
External-pressure allegation
The allegation is that MDR was introduced under pressure from the United States Trade Representative, which had raised concerns about access for U.S. electronic payment services.
Impact on users and merchants
Government position
The government says person-to-person payments and merchant payments up to Rs 2,000 will remain free, with about 96% of person-to-merchant transactions unaffected.
External-pressure allegation
Concerns remain about the 0.4% MDR and its associated 18% GST, particularly where businesses cannot claim input tax credit or face a disproportionate burden.
Market competition
Government position
The government says MDR will give smaller companies a sustainable revenue model and plans to expand BHIM UPI’s market share.
External-pressure allegation
The United States Trade Representative has questioned whether UPI rules provide a level playing field for U.S. payment suppliers, including restrictions involving RuPay and third-party application providers.
Key facts
- MDR-free transactions
- Person-to-person payments and merchant payments up to Rs 2,000 will remain free.
- New MDR rate
- A 0.4% charge will apply to specified person-to-merchant transactions above Rs 2,000.
- Transaction coverage
- About 96% of person-to-merchant transactions are expected to remain unaffected.
- Market share
- PhonePe has 45.64% and Google Pay 32.26% of UPI transaction volume.
- BHIM UPI
- The government plans to promote BHIM UPI, which has slightly less than 1% market share.
- UPI scale
- UPI recorded 24.5 billion transactions in August 2026.
- Potential subsidy saving
- The government may save the Rs 2,000 crore subsidy earmarked for FY27.
- GST rate
- MDR is subject to an 18% GST rate, though input tax credits may offset some of the impact.
Quotes
Department of Financial Services
The government department responsible for financial services policy
“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.”
financialexpress.com
“The allegation that MDR has been introduced under any external influence is patently false and misleading.”
financialexpress.com
Sources
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