New Delhi, Sep 17: The Finance Ministry does not expect an increase in cash transactions due to the levy of 0.4 per cent Merchant Discount Rate (MDR) for UPI transactions above Rs 2,000, which comes into effect from October 15, sources said on Thursday.
Sources said it is anticipated that the imposition of MDR would not lead to a reduction in UPI transactions, as only 4 per cent of total volume is getting impacted due to the decision.
Asked about the concerns leading to an increase in cash transactions post October 15, sources said it is unlikely to happen as transactions through RuPay debit cards are completely free regardless of amount.
The ministry is also preparing to put a monitoring mechanism in place to ensure that the UPI MDR burden is not passed on to customers, sources added, assuaging widespread concerns of transfer of MDR charges to end users.
The ministry has already initiated discussions with payment aggregators and other stakeholders in the Unified Payments Interface (UPI) ecosystem to sensitise them about the MDR and ensure that the burden is not passed on to consumers, sources said.
On concerns that the levy could lead to an increase in prices of goods and services, the sources said the measure is unlikely to have an inflationary impact.
The sources also said the Goods and Services Tax (GST) applicable on MDR will be largely offset through input tax credit and, therefore, its impact on the overall cost is expected to be limited.
Various transactions have been put under specialised categories, the sources said, adding that the ministry does not anticipate any significant impact of GST on MDR.
However, if any issues relating to GST on MDR remain unresolved, they could be taken up for consideration by the GST Council at its meeting, the sources added.
The introduction of a 0.4 per cent MDR on certain UPI transactions above Rs 2,000 is aimed at creating a sustainable revenue framework for the digital payments ecosystem. The MDR is a fee paid by merchants to payment service providers for processing digital transactions.
From October 15, a 0.4 per cent MDR will apply to person-to-merchant UPI payments above Rs 2,000. The charge will be paid by merchants, not consumers, and will be 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 – a carve-out, officials say, shields about 96 per cent of all merchant transactions.
On the rationale of 0.4 per cent MDR, sources said, most countries have that kind of charge and studies have also indicated that this is a sustainable level.
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.
A dedicated fund for promoting use of UPI by small merchants will be set up with a contribution of 5 per cent of total MDR collections. This initiative will expand UPI acceptance, encourage sustained usage, and accelerate the inclusion of small businesses in India’s digital payments ecosystem.
