Govt Plans Measures To Prevent Merchants Passing UPI MDR Charges To Consumers

The government is exploring measures to ensure that the newly introduced Merchant Discount Rate (MDR) on select Unified Payments Interface (UPI) transactions remains a cost for merchants and is not passed on to customers.

As per a report by Moneycontrol, discussions are underway with payment aggregators and other stakeholders in the UPI ecosystem ahead of the October 15 implementation of the new framework.

The government is also considering a monitoring mechanism to assess the impact after the charges come into effect.

Govt focuses on preventing consumer burden

The MDR will apply to person-to-merchant (P2M) UPI transactions above Rs 2,000. The standard charge has been fixed at 0.4%, with a cap of Rs 300 for transactions of Rs 75,000 and above.

Officials said the impact on users is expected to remain limited as only around 4% of total UPI transaction volumes will fall under the MDR framework.

The government is also addressing concerns that the introduction of charges could push users towards cash payments. RuPay debit card transactions will continue to remain free, while certain categories such as railway, telecom, insurance and fuel payments above Rs 2,000 will attract a flat charge of Rs 5.

UPI sustainability remains key objective

The introduction of MDR marks a shift from the existing zero-MDR system for affected transactions. Officials said monitoring will be important to ensure that merchants do not recover the additional cost from customers through higher prices.

The MDR will also attract 18% Goods and Services Tax (GST). Eligible businesses will be able to claim input tax credit on the GST paid on MDR, while any related tax issues may be examined by the GST Council.

The government has said the new structure is aimed at creating a sustainable revenue model for the digital payments ecosystem. The framework seeks to provide income support for UPI participants while protecting small merchants and consumers through exemptions and transaction caps.

With the October 15 rollout approaching, the effectiveness of the new MDR system will depend on how payment companies and merchants implement the rules and whether the additional cost remains within the merchant payment chain.