- Center considers MDR on UPI payments exceeding Rs 2,000.
- This merchant discount rate targets business transactions only.
- Proposal impacts high-value transactions, 65% of UPI value.
- Routine consumer spending and person-to-person transfers remain unaffected.
The Centre is considering allowing banks and payment service providers to levy a merchant discount rate (MDR) of 0.25% to 0.4% on UPI payments exceeding Rs 2,000 made to businesses, while keeping person-to-person transactions outside the proposed framework.
The proposal follows the introduction of the Taxation and Other Laws (Amendment) Bill by Finance Minister Nirmala Sitharaman in Parliament on Tuesday. The Bill seeks to remove the existing restriction that prevents banks and payment service providers from levying MDR on notified electronic payment modes.
Government officials, however, said no decision has yet been taken on when the proposed changes, if approved, would come into effect.
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High-Value Business Transactions Likely to Be Covered
According to official estimates, the proposed Rs 2,000 threshold would apply to only around 5% of all UPI transactions.
However, those transactions account for nearly 65% of the total value processed through the UPI ecosystem, reflecting the dominance of high-value payments in overall transaction volumes.
Officials also said the proposal is unlikely to affect routine consumer spending, including purchases of milk, vegetables and groceries, or payments for auto-rickshaws and taxis.
Most Consumers May See Little Impact
In July, UPI processed 23.7 billion transactions with a combined value of Rs 29.9 lakh crore.
“Even if implemented, 95% of the transactions will not face the merchant discount rate. Besides, not all businesses are going to pass on the fees, which will be a small amount,” a government official said.
The proposed MDR would apply only to payments made to merchants, with transfers between individuals continuing to remain free.
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How MDR Works for Card Payments
Merchant discount rates are already applicable to credit and debit card transactions.
While merchants bear these charges, most do not pass the cost on to consumers. In the case of credit cards, where MDR is not regulated, charges can be as high as 3% of the transaction value.
For debit card transactions of up to Rs 20 lakh, the MDR is capped at 0.4%, while higher-value transactions attract a cap of 0.9%.
