UPI MDR Row: Sitharaman Says ‘It’s Not a Tax’, Explains Who Will Pay the 0.4% Charge
The Finance Minister said the MDR is a charge within the digital payments ecosystem.
By Sakshi
New Delhi, September 25: In response to complaints from opposition parties, Finance Minister Nirmala Sitharaman stated that the planned Merchant Discount Rate (MDR) on selected high-value UPI transactions is not a tax, cess or fee, and that its collection will not accrue to the government.
The Finance Minister said the MDR is a charge within the digital payments ecosystem and is being levied by entities facilitating UPI transactions, including payment service providers, merchants’ banks and other ecosystem participants.
“This is not a tax, this is not a cess, this is not even a surcharge,” she stated. “Additionally, the Consolidated Fund of India is not receiving the collection,” Sitharaman told PTI.
Division of MDR Collection
It is proposed that 40% of the total MDR collected will go to the banks of the clients, 30% to the payment gateway, 20% to the UPI app and 10% to the UPI app’s sponsoring bank.
She assured that the MDR will be covered by the merchant payment ecosystem rather than being transferred to customers.
On some person-to-merchant UPI transactions above Rs 2,000, the National Payments Corporation of India (NPCI) has imposed a 0.4% MDR starting October 15. Person-to-person transfers and transactions up to Rs 2,000 will remain free.
“This is not at all anything to do with the government,” Sitharaman stated, adding that the MDR mechanism involved NPCI, merchants, banks, aggregators and other service providers. The charge would be divided among several players in the payment ecosystem to help maintain technology infrastructure and support advancements and innovation in digital payments.
New Structure Should Not Be Seen as a Levy on Customers
Additionally, the Finance Minister stated that the new structure should not be seen as a levy on customers, pointing out that businesses currently pay MDR on transactions conducted with credit and debit cards.
She said that no MDR will be applied to UPI payments under Rs 2,000 and that RuPay transactions would continue to be free.
The new methodology is expected to have no impact on about 96% of person-to-merchant UPI transactions.
The Finance Minister’s remarks come amid criticism of the proposed MDR, with concerns being raised over its potential impact on merchants and the possibility of charges being passed on to consumers.
A 0.4% MDR will be paid by merchants, not customers, starting October 15. The cost has been capped at Rs 300 for transactions totalling Rs 75,000 or higher.
Individual payments and the vast majority of regular merchant payments will continue to be free.
Services That Will Charge Above Rs 2,000
Railways, telecom, petrol and insurance are examples of essential services that would attract a flat charge of Rs 5 for any transaction above Rs 2,000. A reduced 0.02% charge, capped at Rs 300, will apply to capital market transactions, including stockbroking and mutual funds.
Approximately 96% of all merchant transactions will remain protected from additional fees, while small merchants receiving up to Rs 1 lakh each month through UPI QR codes will also remain covered.
The NPCI, which operates the UPI platform, issued a circular on September 15 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 also be set up, with a contribution of 5% of total MDR collections. The initiative will expand UPI acceptance, encourage sustained usage and accelerate the inclusion of small businesses in India’s digital payments ecosystem.
(With agency inputs)
