MDR on UPI payments above Rs 2,000 likely after Diwali, customers not to be charged

There is important news for millions of people who pay through UPI. After Diwali, a merchant discount rate (MDR), also called a transaction fee, is under discussion for digital payments above Rs 2,000. The National Payments Corporation of India (NPCI) has indicated that the arrangement could take effect in November.

NPCI had earlier planned to bring it in from October 15, but pushed it back in view of the festival days. In an official statement issued on October 13, NPCI had said the charge on UPI payments would be introduced soon after Diwali. Its words were: "Keeping in view the festival season, the merchant discount rate (MDR) on certain person-to-merchant (P2M) UPI transactions will be introduced soon after Diwali. The date will be announced separately."

The question now is who will be charged how much. For payments of Rs 75,000 or more, the maximum MDR will be Rs 300 per transaction. Capital market transactions, such as payments to mutual funds, securities, stockbrokers and dealers, will attract a concessional MDR of 0.02 per cent, also capped at Rs 300.

For certain business categories such as railways, telecom services, insurance and fuel, a uniform concessional MDR of Rs 5 per transaction will apply to payments above Rs 2,000, in place of the usual percentage rate.

The proposed MDR rules will not apply to UPI transfers from one person to another. Personal payments such as sending money to family members, splitting bills with friends or moving money between accounts will remain free, as before.

According to the government, about 96 per cent of merchants' UPI transactions will be exempt from the new charge. Small traders who receive up to Rs 1 lakh a month in UPI QR payments have also been exempted from MDR.

Finance Minister Nirmala Sitharaman has clarified that MDR will not be collected from customers. Banks have also been told not to pass the charge on to merchants. Even so, traders have expressed concern that shopkeepers may indirectly change prices or other facilities to make up for the higher costs.

The reason given for the arrangement is that running the digital payment system, cyber security, fraud prevention and strengthening the technical infrastructure all cost money, which has to be recovered. According to the government, running the UPI system costs about Rs 20,000 crore every year.