Govt Likely to Allow 0.25% to 0.4% MDR on UPI Payments Above Rs 2,000

NEW DELHI: Govt is likely to allow a levy of 0.25% to 0.4% as merchant discount rate (MDR) or charges on UPI payments above Rs 2,000 made to businesses, while keeping payments made by one person to another outside the ambit.

The Taxation and Other Laws (Amendment) Bill, moved by FM Nirmala Sitharaman on Tuesday, has sought to remove the bar on banks and payment service providers to levy MDR on notified electronic payment modes.

Govt officials said there is no decision on when the proposal will be implemented. Official estimates show that the Rs 2,000 floor will cover 5% of all UPI transactions, but those transactions account for 65% of the total transaction value, and is unlikely to impact daily purchases such as milk, vegetables and groceries or even payments for auto or taxi use.

In July, there were 23.7 billion transactions, whose combined value was pegged at Rs 29.9 lakh crore.

"Even if implemented, 95% of the transactions will not face the merchant discount rate. Besides, not all businesses are going to pass on the fees, which will be a small amount," an official said.

Industry persons said govt may likely impose a ceiling on the absolute amount that is charged. "Unlike credit cards, there is no funding cost involved so it makes sense to have a ceiling once the costs are covered," said an industry source.

At present, credit and debit cards come with MDR, but most merchants do not pass it on to consumers. In the case of credit card MDR, where the fee is not regulated, it can be as high as 3% of the transaction value. For debit card transactions up to Rs 20 lakh, there is a cap of 0.4%, and for higher value it is 0.9%.