Government Proposes MDR On High-Value UPI, RuPay Transactions

Merchants accepting payments through the Unified Payments Interface (UPI) may have to pay a nominal Merchant Discount Rate (MDR) on transactions above a specified limit if Parliament approves proposed amendments to the Payment and Settlement Systems Act, 2007.

The Finance Ministry on Tuesday introduced a Bill in the Lok Sabha proposing amendments to tax-related laws, including changes to the Payment and Settlement Systems Act.

The amendment would pave the way for levying MDR on UPI and RuPay card transactions.

At present, the existing law bars banks and payment service providers from charging any fee on UPI payments.

According to Finance Ministry sources, the National Payments Corporation of India (NPCI), the regulator for UPI operations, will issue detailed guidelines specifying the applicable transaction threshold and the MDR rate.

Sources said the proposed charge may apply only to UPI transactions exceeding Rs 2,000, with the MDR likely to range between 0.2 per cent and 0.3 per cent.

The government has clarified that customers will not bear any additional cost.

For example, a customer purchasing goods worth Rs 3,000 will continue to pay only Rs 3,000, while the merchant may pay the applicable fee to the bank.

The proposed amendments also seek to allow businesses with an annual turnover of more than Rs 50 crore to accept payments through BHIM UPI QR codes and RuPay cards, with the transaction limit to be decided by NPCI.

Currently, merchants pay a nominal fee to banks or service providers on card payments.

If the amendment becomes law, it could apply a similar mechanism to UPI payments above the prescribed threshold, though the Bill does not specify the amount or the exact MDR rate.

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