The government, on Thursday, said that it will discuss measures to ensure that Merchant Discount Rate (MDR) charges on UPI payments are not passed on to consumers,
according to sources. They said that the MDR levy of 0.4 pc on UPI transactions above Rs 2,000 will not be passed on to consumers, adding that banks will address all the misconceptions. Mentioning that MDR is not a tax, government sources said that not a single penny from MDR will come to the government, adding that it will be shared with the UPI ecosystem, including banks. Government sources have also said that they are hopeful that the GST Council will review the 18% GST on merchant fees on UPI transactions above Rs 2,000. This comes as sources say there is a fear of people shifting back to cash due to misplaced merchant fees on UPI transactions. Meanwhile, sources said that any proposal related to providing an MDR waiver has not reached the Finance Ministry, however, the Petroleum Dealers’ Association has commission-related issues and not MDR, which are being discussed between the Petroleum Ministry and dealers. Meanwhile, sources said that any proposal related to providing an MDR waiver has not reached the Finance Ministry, however, the Petroleum Dealers’ Association has commission-related issues and not MDR, which are being discussed between the Petroleum Ministry and dealers.
When Will UPI Charges Will Become Effective?
Effective October 15, a 0.4 per cent merchant discount rate will be levied on merchants for UPI transactions over Rs 2,000. However, no charge will be levied on person-to-person transactions regardless of the amount.
Dismissing criticism by Opposition parties, including the Congress, that it is a tax on consumers, government sources said that not a "single penny" from the proposed MDR will go to the government coffers. The collected amount will be shared among banks and other entities in the UPI ecosystem, they added.
How UPI Charges Will Be Distributed
Of the total MDR collected, 40 per cent will go to customers' banks, 30 per cent to payment gateway, 20 per cent to the UPI app and the remaining 10 per cent to the sponsoring bank of the UPI app.
"MDR levy of 0.4 per cent on UPI transactions above Rs 2,000 will not be passed on to the consumers. Banks, as well as the Indian Banks' Association, will address misconceptions related to MDR charges and their impact on users," they said.
The sources further said that fear of consumers shifting back to cash due to merchant fee on UPI is misplaced.
They are also hopeful that the GST Council will review the 18 per cent GST on merchant fee on UPI transactions over Rs 2,000 in the larger interest of consumers, as was done in the case of insurance premium.
"Indian Bank Association (IBA) will soon run an awareness campaign to dispel various misconceptions and rumours about levy of 0.4 per cent MDR on UPI transactions above Rs 2,000," they said.
The introduction of a 0.4 per cent MDR on certain UPI transactions above Rs 2,000 is aimed at creating a sustainable revenue framework for the digital payments ecosystem.
The MDR is a fee paid by merchants to payment service providers for processing digital transactions.
The 0.4 Per Cent Charge on UPI Payments
From October 15, a 0.4 per cent MDR will apply to person-to-merchant UPI payments above Rs 2,000. The charge will be paid by merchants, not consumers, and will be capped at Rs 300 for transactions of Rs 75,000 or more. Payments between individuals, as well as the vast majority of everyday merchant payments, will remain free.
Essential services, such as railways, telecom, fuel and insurance, will attract a flat Rs 5 fee per transaction above Rs 2,000.
Capital markets transactions (mutual funds, stockbroking) get a lower 0.02 per cent rate, also capped at Rs 300.
Small merchants collecting up to Rs 1 lakh a month via UPI QR codes remain fully exempt from any new charge and shield about 96 per cent of all merchant transactions.
The NPCI, which operates the UPI platform, on September 15, issued a circular providing for MDR on certain UPI transactions, with the move aimed at creating a sustainable revenue framework for the digital payments ecosystem.
A dedicated fund for promoting the use of UPI by small merchants will be set up, with a contribution of 5 per cent of total MDR collections. This initiative will expand UPI acceptance, encourage sustained usage, and accelerate the inclusion of small businesses in India's digital payments ecosystem.
With inputs from PTI
