The government has ruled out any rollback of the proposed 0.4% Merchant Discount Rate (MDR) on specified UPI transactions above Rs 2,000, saying the decision has already been taken and there is no question of reversing it.
A senior government official said on Wednesday that the new MDR framework, which will come into effect from October 15, has been introduced in the larger interest of the UPI ecosystem and to strengthen its safety and security. The government has said the framework is aimed at making UPI financially sustainable after years of zero-MDR transactions.
What changes from October 15?
Under the new framework, a 0.4% MDR will apply to specified person-to-merchant (P2M) UPI transactions above Rs 2,000. The charge will be capped at Rs 300 per transaction for payments of Rs 75,000 and above.
However, customers will not be required to pay the MDR separately. The government has clarified that the charge is part of the merchant payment ecosystem and is distributed among participating banks, payment service providers and UPI application providers.
Person-to-person UPI transfers will continue to remain completely free, regardless of the amount involved. Payments to merchants up to Rs 2,000 and transactions covered under the zero-MDR framework for small merchants will also remain free. The government estimates that around 96% of P2M transactions will remain unaffected.
Special rates for essential sectors
The new framework also provides a flat MDR of Rs 5 for UPI transactions above Rs 2,000 in certain essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs.
For capital-market transactions involving mutual funds, securities, stockbrokers and dealers, the MDR will be 0.02%, capped at Rs 300 per transaction.
Government cites UPI sustainability
Government sources said the decision is intended to strengthen the long-term sustainability, safety and security of the UPI ecosystem. The move marks a significant change after nearly six years of a zero-cost UPI model.
The government has also rejected claims that foreign influence played a role in introducing the MDR, saying India’s UPI policy decisions are being made independently with the objective of building a sustainable and inclusive digital payments ecosystem.
The decision has faced criticism from traders, retailers and political parties, while a public interest litigation has also been filed in the Supreme Court challenging the new MDR framework.
With the government making clear that there will be no rollback, the new UPI MDR framework is set to come into effect from October 15.