The proposed Merchant Discount Rate (MDR) on select high-value UPI transactions above Rs 2,000 is neither a tax, cess, nor a surcharge, and the collections will not accrue to the government, Finance Minister Nirmala Sitharaman said, noting that the proposed charge will not affect the end consumer.

To maintain the technology infrastructure, support advancements and innovation in digital payments, these charges will be shared among various stakeholders in the payments system," Sitharaman told news agency PTI.

40:30:20:10: MDR Allocation Ratio

Of the total MDR collected, it is proposed to allocate 40 per cent to the customer bank, 30 per cent to the payment gateway, 20 per cent to the UPI app and the remaining 10 per cent to the bank sponsoring the UPI app.

The minister reiterates that MDR will not be passed on to customers; it will remain within the merchant payment ecosystem as it is a charge within the digital payments ecosystem, levied by entities, including payment service providers, merchant banks and other ecosystem partners.

"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.

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Earlier this month, the National Payments Corporation of India (NPCI) announced to levy 0.4 per cent MDR on specified person-to-merchant UPI transactions above Rs 2,000 from October 15. It is said that transactions up to Rs 2,000 and person-to-person transfers will continue to remain free.

"This is not at all anything to do with the government," she said, adding that the MDR mechanism involves NPCI, merchants, banks, aggregators and other service providers.

Merchant Pay MDR On Credit Card Transactions

The Finance Minister also said that businesses already pay MDR on transactions made through credit and debit cards and that this new policy should not be considered as a charge on consumers. Rupee transactions will remain free and no MDR will be applicable on UPI payments below Rs. 2,000, he added.

It is estimated that about 96 per cent of UPI transactions from individuals to businesses will not be affected by this new policy.

The Finance Minister's comments come amid criticism of the proposed MDR. There are concerns about how it will affect businesses and how these charges can be passed on to consumers.

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What Will Change From October 15

  • Effective October 15, a 0.4 per cent MDR will be paid by merchants, not consumers, and the fee has been capped at Rs 300 for transactions of Rs 75,000 or more.

  • Payments between individuals, as well as the vast majority of everyday merchant payments, will remain free.

  • Essential services, such as railways, telecom, fuel and insurance, will attract a flat Rs 5 fee per transaction above Rs 2,000. Capital markets transactions (mutual funds, stockbroking) get a lower 0.02 per cent rate, also capped at Rs 300.

  • Small merchants collecting up to Rs 1 lakh a month via UPI QR codes remain fully exempt from any new charge and shield about 96 per cent of all merchant transactions.

  • The NPCI, which operates the UPI platform, on September 15, issued a circular providing for MDR on certain UPI transactions, with the move aimed at creating a sustainable revenue framework for the digital payments ecosystem.

(With Inputs From PTI)