Government may allow fees on UPI payment above Rs 2k

The Government of India is considering a proposal to introduce a levy, ranging from 0.25% to 0.4%, on UPI payments exceeding Rs 2,000 made to businesses, while exempting inter-personal transactions. The Taxation and Other Laws (Amendment) Bill, introduced by Finance Minister Nirmala Sitharaman, seeks to grant banks and payment service providers the authority to levy merchant discount rates (MDR) on electronic payments.

Government officials have not yet decided on the timeline for implementing the proposal. However, estimates suggest that the Rs 2,000 threshold will cover approximately 5% of all UPI transactions, despite accounting for 65% of the total transaction value. This implies that the majority of daily purchases, such as groceries, milk, and auto or taxi services, will remain unaffected by the proposed fee.

In July, the total number of UPI transactions stood at 23.7 billion, with a combined value of Rs 29.9 lakh crore. Even if the proposal is implemented, it is expected that 95% of transactions will not be subject to the merchant discount rate. Moreover, not all businesses will necessarily pass on the fees to consumers, as they may extend a small amount of the charge.

Industry experts suggest that the government may impose a ceiling on the absolute amount charged as a fee. Unlike credit cards, UPI transactions do not involve funding costs, making it logical for the government to set a maximum limit once the costs are covered. Currently, credit and debit cards incur MDR, but merchants typically do not pass it on to customers.

For credit card MDR, where the fee is not regulated, it can reach up to 3% of the transaction value, while debit card transactions up to Rs 20 lakh are capped at 0.4%, and higher-value transactions are capped at 0.9%.