Govt moves to stop merchants from passing UPI MDR charges to consumers

Banks will monitor merchants and the IBA will develop a mechanism to prevent them from passing on the Merchant Discount Rate (MDR) for UPI transactions above Rs 2,000 to consumers, as per government sources.

Banks will monitor merchants to ensure that the Merchant Discount Rate (MDR) on UPI transactions is not passed on to consumers, while the Indian Banks' Association (IBA) will develop a mechanism to prevent merchants from charging customers extra for digital payments, according to government sources.

The move comes as the government seeks to ensure that the MDR on specified UPI merchant transactions above Rs 2,000 is borne by merchants and does not result in additional charges for consumers.

Government sources said the Finance Ministry will hold a meeting with the IBA to discuss the implementation of the MDR framework and measures to ensure that merchants do not pass on the payment-processing charges to customers. The ministry will also hold consultations with merchant representatives and the Confederation of All India Traders (CAIT) on issues related to MDR, sources said.

Consumer Awareness and GST Implications

As part of efforts to improve consumer awareness, the IBA will launch an explanatory campaign in regional languages to inform consumers about the MDR framework and clarify that they are not required to pay any additional charges for UPI transactions.

The Goods and Services Tax (GST) Council is also likely to take a view on the GST treatment of MDR, according to government sources.

Understanding the UPI MDR Framework

Under the UPI MDR framework, specified person-to-merchant transactions above Rs 2,000 attract a standard MDR of 0.4 per cent, with a maximum charge of Rs 300 for transactions of Rs 75,000 and above. However, all person-to-person UPI payments remain free, irrespective of the transaction amount.

Merchant payments up to Rs 2,000 also continue to attract zero MDR. Small merchants receiving up to Rs 1 lakh per month through UPI QR codes remain exempt from MDR. According to the government's explanatory note, around 96 per cent of all UPI merchant transactions remain unaffected by the charges.

For essential sectors, including railways, telecom, insurance, fuel and agricultural inputs, the MDR is limited to a flat Rs 5 on eligible transactions above Rs 2,000.

Clarification on MDR Charges

Government sources clarified that MDR is a payment-processing charge borne by merchants and is neither a tax nor a government surcharge. The amount collected is distributed among participants in the payment ecosystem, including banks, merchant acquirers and UPI application providers, with no portion going to the government.

Rationale Behind the MDR Framework

The government has maintained that the MDR framework is aimed at ensuring the long-term financial sustainability of India's UPI ecosystem by supporting payment infrastructure, cybersecurity, fraud prevention and the expansion of digital payments across the country. (ANI)

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