New Delhi: The proposed Merchant Discount Rate (MDR) on select high-value UPI transactions is neither a tax, cess nor a surcharge, and the collections will not accrue to the government, Finance Minister Nirmala Sitharaman said, rejecting criticism from Opposition parties.
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, merchant’s bank and other ecosystem participants.
“This is not a tax, this is not a cess, this is not even a surcharge. And the collection is not coming to the Consolidated Fund of India,” Sitharaman told PTI.
Under the new framework, effective October 15, the MDR will be shared among participants in the UPI ecosystem. Of the amount collected, 40 per cent will go to the customer’s bank, 30 per cent to the payment gateway, 20 per cent to the UPI app and 10 per cent to the sponsoring bank.
Sitharaman said the charge was intended to support the technology infrastructure, innovation and other costs involved in running the digital payments ecosystem.
The National Payments Corporation of India (NPCI) has fixed the MDR at 0.4 per cent for eligible UPI merchant transactions above Rs 2,000, with the charge capped at Rs 300 for transactions of Rs 75,000 or more. Person-to-person payments will continue to remain free.
Certain essential services, including railways, telecom, fuel and insurance, will attract a flat Rs 5 fee for transactions above Rs 2,000, while capital market transactions such as mutual funds and stockbroking will attract an MDR of 0.02 per cent, capped at Rs 300.
Small merchants receiving up to Rs 1 lakh a month through UPI QR payments will remain exempt from the new MDR. Around 96 per cent of merchant transactions are estimated to remain unaffected by the framework.
Sitharaman also noted that merchants already pay MDR on credit and debit card transactions and said the new UPI framework should not be seen as a charge on customers.
The NPCI introduced the new MDR framework to create a sustainable revenue model for the digital payments ecosystem. A dedicated fund for promoting UPI adoption among small merchants will also be created, with 5 per cent of total MDR collections earmarked for it.
