The government is looking at measures to ensure merchants do not pass on the newly introduced merchant discount rate (MDR) on certain unified payments interface (UPI) transactions to consumers, a finance ministry official told reporters.
The finance ministry is holding discussions with payment aggregators and other stakeholders in the UPI ecosystem ahead of the October 15 implementation of the new fee structure. The talks are focused on preventing merchants from recovering the payment charge from customers and putting in place a mechanism to track the impact of the changes after they take effect.
Under the revised framework, MDR will be levied on person-to-merchant (P2M) UPI transactions above Rs 2,000. The standard MDR has been set at 0.4%, with
the charge capped at Rs 300 for transactions of Rs 75,000 and above.
The government is also assessing whether the return of MDR could lead to a shift from digital payments to cash. According to ministry sources, the potential impact is expected to remain limited as transactions covered by MDR are estimated to account for only around 4% of the overall UPI transaction volume.
RuPay debit card transactions will remain free under the new framework. Certain sectors will also have a separate concessional charge, with payments above Rs 2,000 in railways, telecom, insurance and fuel attracting a flat Rs 5 MDR.
The proposed monitoring mechanism is aimed at ensuring that the merchant-side fee does not eventually become an additional charge for customers. The issue has assumed importance as the affected transactions currently operate under a zero-MDR regime.
The MDR will also attract 18% Goods and Services Tax (GST). Eligible businesses can claim input tax credit on the GST paid on the MDR, while any concerns related to the tax treatment may be referred to the GST Council, officials said.
The government has defended the introduction of MDR as a way to create a revenue stream for participants across the digital payments ecosystem. The revised structure is aimed at improving the long-term sustainability of UPI while limiting the impact on consumers through exemptions and transaction-level caps.
With the new MDR regime set to take effect from October 15, its impact on merchants, payment firms and consumer behaviour will depend on how effectively the government and ecosystem participants monitor the implementation and prevent any pass-through of the charge to users.
