UPI MDR: ‘Not a single cent’ will go to government; The earnings are to be divided between banks and other entities, the report says | Today’s news

The above proposed Merchant Discount Rate (MDR) of 0.4% for UPI payments ₹2,000 will not result in any additional cost to consumers, news agency PTI said citing government sources. The new MDR is set to come into effect from October 15 and will only apply to merchants accepting UPI payments exceeding ₹2000.

Person-to-person UPI transfers will remain free, regardless of transaction value. Responding to criticism from opposition parties, including the Congress, who called the move a tax on consumers, government sources said that not a “single cent” of the money collected through the MDR would be transferred to the government.

Instead, revenue from the fee will be shared among banks and other participants involved in processing UPI payments, sources said.

Quick answers to key questions

•5 QUESTIONS

The UPI MDR is proposed at 0.4% for UPI transactions between individual merchants above ₹2,000, capped at ₹300 for transactions above ₹75,000.

UPI MDR revenue will be split between banks and participants involved in processing UPI payments: 40% to customer banks, 30% to payment gateways, 20% to UPI apps and 10% to sponsoring banks.

No, consumers will not bear the cost of UPI MDR; is meant to be paid by merchants and person-to-person UPI transfers will remain free.

The UPI MDR was introduced to create a sustainable revenue model for the digital payments ecosystem that covers costs related to infrastructure, cyber security and customer support.

UPI transactions below ₹2,000, person-to-person transactions and small merchant transactions with earnings up to ₹1,000 per month will remain exempt from the new MDR charges.

Under the proposed revenue sharing arrangement, customer banks will receive 40 percent of the collected MDR. The payment gateways will get 30 percent, with 20 percent going to the UPI app and the remaining 10 percent to the bank sponsoring the UPI app.

Read also | UPI MDR to start on October 15: Why NPCI does not expect any hit to transaction volume

“MDR charge of 0.4 percent on the above UPI transactions ₹2,000 will not be passed on to consumers. The banks, as well as the Association of Indian Banks, will address misconceptions related to MDR charges and its impact on users,” sources said.

MDR is not a tax, says the government

They also clarified that MDR should not be seen as a tax, levy or surcharge.

Government sources further dismissed concerns that the introduction of a merchant charge could encourage consumers to return to cash payments. They said such concerns were unfounded.

Sources also expressed hope that the GST Council will consider reducing or revising the 18% GST applicable to business charges for UPI transactions above. ₹2,000, citing as an example the decision taken in the matter of insurance premiums.

The Indian Banks Association (IBA) is expected to launch an awareness campaign to address what it termed as misconceptions and rumors surrounding the proposed 0.4% MDR.

The proposed fee aims to create a more sustainable revenue model for the digital payments ecosystem. MDR refers to the fee paid by merchants to payment service providers for processing digital payments.

From October 15, merchant-to-merchant UPI payments will be subject to an MDR of 0.4% above ₹2,000. The levy will be paid by merchants, not consumers, and will be capped ₹300 for transactions amounting to ₹75,000 or more. Person-to-person payments, like the vast majority of everyday merchant payments, will remain free.

Read also | Watch: #NirmalaSitharaman clarifies #Modi Govt #MDR charges on #UPI

Basic services such as railways, telecommunications, fuel and insurance attract the apartment ₹5 transaction fee above ₹2,000. Capital markets transactions (mutual funds, stockbroking) have a lower rate of 0.02 percent, also limited to ₹300.

Small traders collecting up to ₹1,00,000 per month through UPI QR codes remains completely exempt from any new charges and protects about 96 percent of all business transactions.

NPCI, which operates the UPI platform, issued a circular on September 15 providing MDR on certain UPI transactions to create a sustainable revenue framework for the digital payments ecosystem.

A dedicated fund will be set up to promote the use of UPI by small traders with a contribution of 5 per cent of the total MDR collections. This initiative will expand the adoption of UPI, encourage sustained use and accelerate the integration of small businesses into India’s digital payments ecosystem.