According to government sources, the proposed trade commission of 0.4% on UPI transactions exceeding 2000 rupees will not be imposed on end consumers. This measure will come into effect on October 15, when a Merchant Discount Rate (MDR) of 0.4% will be levied on merchants for UPI operations above 2000 rupees. Furthermore, no charges will be levied on transactions between individuals, regardless of the amount.
Government sources refuted criticism from opposition parties, including the Congress, asserting that this is not a consumer tax because not a single penny of the proposed MDR will go into the state treasury. The collected funds will be distributed among banks and other participants in the UPI ecosystem. According to the plan, 40% of the collected MDR will go to customer banks, 30% to payment gateways, 20% to the UPI application itself, and the remaining 10% to the sponsoring bank of the UPI application.
Sources emphasized that the 0.4% MDR commission on UPI transactions over 2000 rupees will not be passed on to consumers. Banks and the Indian Banks' Association will work to clarify misconceptions regarding MDR charges and their impact on users. It was also clarified that MDR is neither a tax, nor a fee, nor a surcharge.
Sources also stated that consumer concerns about reverting to cash transactions due to the merchant fee on UPI are unfounded. They expressed hope that the GST Council will consider an 18% tax on the merchant fee for UPI transactions over 2000 rupees in the greater interest of consumers, similar to how it was done with insurance premiums.
The Indian Banks' Association (IBA) will soon conduct an information campaign to dispel various misconceptions and rumors about the introduction of a 0.4% MDR on UPI transactions exceeding 2000 rupees. The introduction of 0.4% MDR on certain UPI transactions over 2000 rupees aims to create a sustainable revenue structure for the digital payments ecosystem. MDR is a fee paid by merchants to payment service providers for processing digital transactions.
Starting October 15, 0.4% MDR will apply to payments from an individual to a merchant via UPI exceeding 2000 rupees. Merchants, not consumers, will pay the fee, and it will be capped at 300 rupees for transactions of 75,000 rupees or more. Payments between private individuals, as well as the vast majority of daily merchant payments, will remain free. For essential services such as railways, telecommunications, fuel, and insurance, a fixed fee of 5 rupees will be charged for transactions over 2000 rupees. Stock market transactions (mutual funds, brokerage services) have a lower rate of 0.02%, also capped at 300 rupees.
Small traders receiving up to 1 lakh rupees per month through UPI QR codes are completely exempt from any new charges, covering about 96% of all merchant transactions. NPCI, the operator of the UPI platform, issued a circular on September 15 providing for MDR on certain UPI transactions, which was done to create a sustainable revenue system for the digital payments ecosystem. A special fund will be created to promote the use of UPI by small traders, into which 5% of the total MDR collection will be directed. This initiative will expand UPI adoption, stimulate continuous usage, and accelerate the inclusion of small businesses into India's digital payments ecosystem.