Banks To Monitor Merchants To Prevent Passing UPI MDR To Consumers, Says Govt Sources

New Delhi, Sep 25 (KNN) Banks will monitor merchants to ensure that the Merchant Discount Rate (MDR) on specified UPI transactions is not passed on to consumers, while the Indian Banks’ Association (IBA) will develop a mechanism to prevent merchants from levying additional charges on digital payments, according to government sources.

The move follows the government’s decision to introduce MDR on specified person-to-merchant UPI transactions above Rs 2,000, with the charge to be borne by merchants rather than consumers.

The Finance Ministry is expected to meet the IBA to discuss implementation of the MDR framework and measures to prevent merchants from passing the payment-processing charge to customers. The ministry will also consult merchant representatives and the Confederation of All India Traders (CAIT), ANI reported.

IBA To Launch Consumer Awareness Campaign

The IBA will launch an awareness campaign in regional languages to explain the MDR framework and clarify that consumers are not required to pay additional charges for UPI transactions.

The GST Council is also likely to consider the GST treatment of MDR, according to government sources.

Under the framework, specified person-to-merchant UPI transactions above Rs 2,000 will attract a standard MDR of 0.4 per cent, subject to a maximum charge of Rs 300 for transactions of Rs 75,000 and above.

Person-to-person UPI payments will remain free irrespective of transaction value, while merchant transactions up to Rs 2,000 will continue to attract zero MDR. Small merchants receiving up to Rs 1 lakh a month through UPI QR codes will also remain exempt.

According to the government’s explanatory note, around 96 per cent of all UPI merchant transactions will remain unaffected by the charges. For essential sectors such as railways, telecom, insurance, fuel and agricultural inputs, MDR will be capped at a flat Rs 5 on eligible transactions above Rs 2,000.

MDR Is Payment-Processing Charge, Not Government Levy

The government has clarified that MDR is a payment-processing charge paid by merchants and is neither a tax nor a government surcharge. The amount is distributed among participants in the digital payments ecosystem, including banks, merchant acquirers and UPI application providers, with no portion accruing to the government.

The government has said the MDR framework is intended to support the long-term financial sustainability of the UPI ecosystem by helping fund payment infrastructure, cybersecurity, fraud prevention and the continued expansion of digital payments.

(KNN Bureau)