MDR on UPI not imposed due to external pressure, say govt sources

The government on Thursday denied allegations that the recently introduced Merchant Discount Rate (MDR) on UPI transactions was imposed under external pressure, stating the claim was "false and misleading" according to sources. Officials clarified there is no separate GST levied on MDR charges, and businesses can claim full input tax credit against it, meaning no net revenue for the government.

The assertion that UPI usage would surge due to the new fee was dismissed as a rumor, with concerns to be examined by the GST Council. The government noted UPI's explosive growth since its inception, with transactions soaring to over 24,000 crore annually, involving more than 6.5 crore merchants across 11 countries. Amendments to the Payment and Settlement Systems (PSS) Act on September 14 exempted UPI and RuPay debit card transactions up to Rs 2,000 from the fee, while the NPCI introduced a tiered MDR structure.

Peer-to-peer (P2P) transactions remain free, while other categories face charges between a Rs 5 flat fee and approximately 0.4% for select sectors. The government highlighted that RuPay debit cards have retained an MDR-free status to maintain a competitive advantage over foreign-issued cards. The new fee was introduced to foster competition by enabling smaller players to operate profitably, while shielding 96% of transactions, primarily small traders, from any charges.

The government plans to closely monitor the implementation from October 15, ensuring merchants do not pass on the charges to consumers and confident that it won't lead to a return to cash payments or a decline in UPI usage.