Hyderabad: The government is likely to allow banks and payment service providers to levy a charge of 0.25 to 0.4 per cent as merchant discount rate (MDR) on UPI payments above Rs 2,000 made to businesses, while keeping person-to-person transactions out of its scope, officials said.
The Taxation and Other Laws (Amendment) Bill, moved by Union Finance Minister Nirmala Sitharaman in Parliament on Tuesday, August 4, seeks to remove the existing bar on banks and payment service providers from levying MDR on notified electronic payment modes. Officials, however, told the Times of India that no decision has been taken on when the proposal will be implemented.
Won’t affect daily small purchases
Official estimates show that the Rs 2,000 threshold will cover only five per cent of all UPI transactions by volume, though those transactions account for 65 per cent of the total transaction value. The move is unlikely to affect daily purchases such as milk, vegetables and groceries or payments for auto and taxi rides.
In July, UPI recorded 23.7 billion transactions with a combined value of Rs 29.9 lakh crore.
“Even if implemented, 95 per cent 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,” an official told TOI.
Industry sources said the government may also impose a ceiling on the absolute amount that can be charged. “Unlike credit cards, there is no funding cost involved, so it makes sense to have a ceiling once the costs are covered,” an industry source told TOI.
At present, credit and debit cards carry MDR, though most merchants do not pass the cost on to consumers. Credit card MDR, which is unregulated, can be as high as three per cent of the transaction value. For debit card transactions up to Rs 20 lakh, the cap stands at 0.4 per cent and 0.9 per cent for higher values.
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