The UPI transaction fees row has exploded into a political slugfest, with Congress flatly denying that its MPs backed the government’s decision to levy charges on high-value payments—and accusing the Modi administration of deliberately deflecting blame amid mounting public anger.
The government announced a 0.4% Merchant Discount Rate (MDR) will apply to person-to-merchant UPI payments above Rs 2,000 from October 15. Small merchants receiving up to Rs 1 lakh monthly via UPI QR codes remain exempt. But the move has triggered a backlash from small traders, digital payment advocates, and opposition parties.
Congress says it never endorsed this framework. According to reports on the controversy, the party claims the government is misrepresenting the stance of its parliamentary committee members to legitimise an unpopular decision.
The Finance Ministry counters that a parliamentary committee—which included Congress MPs—examined and supported a framework for such fees. The government also denies external pressure, particularly from the United States, played any role in the policy decision.
The Political Blame Game Over UPI Transaction Fees
Congress has accused the Modi government of “diverting attention from public backlash” by dragging opposition parties into the controversy. The party argues that while its members may have been part of committee discussions, supporting a general framework for sustainable revenue models is entirely different from endorsing this specific levy structure and timeline.
The government’s narrative is clear: digital payment platforms need a revenue model to remain viable long-term. Domestic solutions like RuPay must be supported over international competitors. The fee structure protects small merchants while generating sustainable income for payment infrastructure operators.
Congress sees this differently. The party views the move as anti-consumer and anti-small business. By citing committee participation, Congress argues, the government is attempting to share political blame and neutralise opposition criticism.
This is classic legislative theatre in India. Parliamentary committees often include members from all parties. Their recommendations rarely mean blanket endorsement of specific policies derived from those recommendations. Congress is essentially saying: we discussed frameworks, not this particular implementation.
What Changes on October 15
From mid-October, any person-to-merchant UPI transaction exceeding Rs 2,000 will attract a 0.4% MDR. A Rs 5,000 purchase, for instance, will now cost the merchant Rs 20 extra.
Crucially, small merchants are shielded. Those receiving up to Rs 1 lakh monthly through UPI QR codes face no charges. This protection covers India’s vast network of small shopkeepers, street vendors, and neighbourhood stores—a politically sensitive constituency.
Large retailers, e-commerce platforms, and high-volume merchants will bear the cost. So will customers in some cases, depending on whether merchants pass on charges or absorb them.
US Pressure Denial Amid Trade Report Concerns
The timing of this policy has raised eyebrows. A US trade report recently flagged concerns about India’s digital payment ecosystem. Some observers speculated American pressure—particularly from payment card companies—pushed India toward this fee structure.
The Finance Ministry has denied this directly. According to official statements, the policy is driven entirely by domestic considerations. The government wants to create a sustainable, long-term revenue model for payment infrastructure operators without depending on transaction volume alone.
RuPay—India’s homegrown card payment network—has been a flagship initiative. Protecting and strengthening it against international competitors is consistent with the government’s broader “Make in India” agenda for fintech.
Whether this explanation satisfies critics remains unclear. Opposition parties, particularly Congress, argue the government is simply making excuses. They contend external pressure, combined with lobbying by international payment systems, influenced the decision.
Small Merchants Protected, But Questions Remain
The exemption for small merchants has been positioned as protective. But the Rs 1 lakh monthly threshold may exclude many shop owners who handle higher volumes during festival seasons or specific days.
A grocery store averaging Rs 80,000 monthly will be exempt. But the same store during Diwali might exceed Rs 1 lakh in a single week—potentially triggering fees in peak seasons, not off-seasons. The policy’s real-world impact on small business remains uncertain.
Congress has seized on this ambiguity. The party argues the exemption is merely cosmetic, designed to deflect criticism while actually expanding charges across segments the government claims to protect.
The government, meanwhile, insists the threshold was carefully calibrated. Setting it lower would erode the revenue model. Setting it higher would expose too many merchants to charges.
The Broader Digital Payments War
This dispute reflects a deeper tension in India’s fintech sector. UPI has exploded in adoption—over 15 billion transactions monthly. But the underlying payment infrastructure operates on razor-thin margins or often at a loss.
Transaction fees are common globally. Google Pay and PhonePe were never free; they operate on transactional revenue. Indian UPI operators have long survived on subsidies and investor backing.
The 0.4% MDR represents a shift toward cost recovery. The government frames this as necessary maturation of the market. Congress frames it as a burden on ordinary Indians and small traders.
FAQ
Q: When do UPI transaction fees apply?
A: From October 15, 2026. A 0.4% Merchant Discount Rate applies to person-to-merchant UPI payments exceeding Rs 2,000.
Q: Who is exempt from UPI transaction fees?
A: Small merchants receiving up to Rs 1 lakh monthly via UPI QR codes are fully exempt. Consumer-to-consumer (P2P) UPI transfers remain free.
Q: Did Congress support the UPI fee policy?
A: Congress denies its MPs backed this specific policy. The party says while its members discussed general frameworks in a parliamentary committee, that doesn’t constitute endorsement of this particular fee structure or timeline.
Q: Did US pressure influence India’s UPI fee decision?
A: The Finance Ministry denies this. Officials state the policy aims to create sustainable revenue models for domestic payment infrastructure and protect RuPay against international competitors.
Q: How much will customers pay in UPI fees from October 15?
A: Fees vary by transaction size. A Rs 5,000 transaction attracts Rs 20 in MDR. Consumers may or may not see this charge directly, depending on whether merchants absorb or pass it on.
