UPI Transaction Fees: Government Confirms No Rollback On MDR Charges

The Indian government has firmly stated there will be no reversal of the new 0.4 per cent Merchant Discount Rate (MDR) charges on Unified Payments Interface (UPI) transactions exceeding Rs 2,000, effective October 15, aiming to bolster the digital payment ecosystem’s sustainability.

There is no question of a re-think on the issue of imposition of 0.4 per cent MDR charges on Unified Payments Interface (UPI) transactions over Rs 2,000, government sources said on Wednesday. A top official, when asked whether the government was considering to roll back the proposed Merchant Discount Rate charges on UPI transactions above Rs 2,000, to be implemented from October 15, said a decision has been taken and there was no question of reversing it.

Sources said the decision to impose MDR charges was taken in the larger interest of the UPI ecosystem and to strengthen its safety and security. The decision to levy charges, as prevalent in other countries, was taken at the time of introduction of UPI system in 2020, sources said, adding that new the MDR framework will make UPI self-sustainable.

Opposition And Government’s Stance

The decision has evoked strong opposition from several quarters including traders, shopkeepers and political parties who dubbed the move as ‘Modi Tax’. Some Opposition parties, including the Congress, have accused Prime Minister Narendra Modi of succumbing under the US pressure.

Defending the decision, the government had on Tuesday said it will also give incentives for further expansion in rural and semi urban areas and maintain competitiveness, while ensuring that large majority of payments remain free of charge.

Ensuring UPI’s Financial Sustainability

Parliament’s Standing Committee on Finance, in its 32nd report, warned that the zero-MDR regime “puts pressure on government finances” and limits the ecosystem’s ability to invest in long-term infrastructure, urging that “establishing a viable revenue mechanism is critical to ensuring the UPI ecosystem achieves financial sustainability without perpetually straining the government exchequer”. The panel had flagged that the government was providing roughly Rs 2,000 crore a year to support the incentive scheme built around the zero-MDR policy.

Impact On Users And Merchants

Ending nearly six years of fully free UPI payments, the government on Tuesday introduced a 0.4 per cent fee on transfers worth more than Rs 2,000 made to merchants through the platform from October 15 while explicitly ring-fencing everyday person-to-person transactions as well as small payments from any charge.

“Customers will not be required to pay any charge when making such payments through UPI,” the finance ministry said in a statement, adding, “MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments.” Also, individuals will continue to have “unlimited free usage, with no monthly quotas, volume restrictions or tiered caps on free UPI transactions”, it said. The carefully calibrated move signalled the end of an era for the world’s largest real-time payments system even as the government tried to avoid alarming the hundreds of millions of daily users.

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