NPCI responds to concerns, claims over 96% of UPI merchant payments exempt from MDR

• More than 96 per cent of UPI merchant transactions are valued at Rs 2,000 or less and will continue to attract zero MDR

• Merchants receiving up to Rs 1 lakh a month through UPI are also exempt from the charge

• A 0.4 per cent MDR will apply only to eligible merchant transactions above Rs 2,000, with concessions for essential sectors

More than 96 per cent of UPI merchant transactions will remain exempt from Merchant Discount Rate (MDR), the National Payments Corporation of India said on Tuesday, clarifying that small traders will not face additional costs under the new payment framework.

NPCI rejected reports suggesting that goods and services tax on UPI MDR would make digital payments more expensive for small merchants.

MDR applies only to person-to-merchant transactions above Rs 2,000. Payments of up to Rs 2,000 will continue to carry zero MDR and will consequently have no GST impact, the payments body said.

Government data show that transactions valued at Rs 2,000 or less account for more than 96 per cent of UPI merchant payment volumes. The vast majority of such payments will therefore remain outside the MDR framework.

Merchants receiving up to Rs 1 lakh a month through UPI will also not be required to pay MDR. NPCI said concerns about an additional GST burden on small businesses were therefore misplaced.

The organisation added that merchants liable to pay GST could adjust the tax paid on MDR against the GST payable on the sale of goods, in the same way that input taxes are set off against output tax liabilities. As a result, the GST component on MDR would not become an additional cost for eligible businesses, it said.

The framework will not affect person-to-person transactions. All such UPI transfers will continue to remain free, regardless of the amount transferred, according to an explainer issued earlier by the Finance Ministry.

The ministry had also clarified that MDR is neither a tax nor a charge collected by the government or NPCI. The amount is distributed among payment ecosystem participants, including banks, payment service providers and UPI application providers, to support the operation and expansion of the system.

Under the revised framework, a nominal MDR of 0.4 per cent will apply only to eligible person-to-merchant transactions exceeding Rs 2,000. For payments of Rs 75,000 or more, the charge will be capped at Rs 300 per transaction.

Transactions above Rs 2,000 in essential and low-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of Rs 5 per transaction.

The fixed charge is intended to provide cost certainty for essential public services and businesses operating on narrow margins.

With IANS inputs