The government is considering measures to ensure that merchants do not pass on the newly introduced Merchant Discount Rate (MDR) on certain UPI transactions to consumers, a Finance Ministry official said.
The Finance Ministry is holding discussions with payment aggregators and other stakeholders in the UPI ecosystem ahead of the new fee structure coming into effect on October 15. The discussions are focused on preventing merchants from recovering the charge from customers and developing a system to monitor the impact of the changes.
Under the revised framework, MDR will apply to person-to-merchant (P2M) UPI transactions above ₹2,000. The standard MDR has been fixed at 0.4%, with the charge capped at ₹300 for transactions of ₹75,000 and above.
The government is also examining whether the introduction of MDR could encourage some users to shift from digital payments to cash. However, officials expect the impact to be limited, as transactions covered by the MDR are estimated to account for around 4% of total UPI transaction volume.
RuPay transactions to remain free
RuPay debit card transactions will continue to remain free under the revised framework.
A concessional MDR of ₹5 will apply to eligible UPI payments above ₹2,000 in sectors such as railways, telecom, insurance and fuel.
18% GST applicable on MDR
The MDR will also attract 18% Goods and Services Tax (GST). Eligible businesses can claim input tax credit on the GST paid on MDR. Any issues related to the tax treatment may be referred to the GST Council, officials said.
The government has said the introduction of MDR is intended to create a revenue stream for participants in the digital payments ecosystem and support the long-term sustainability of UPI.
The proposed monitoring mechanism will focus on ensuring that the merchant-side charge does not become an additional cost for consumers. The impact of the new MDR structure on merchants, payment companies and consumer behaviour will become clearer after its implementation on October 15.