Will you have to pay for UPI payments going ahead? The government is expected to permit the levy of a Merchant Discount Rate (MDR) of 0.25% to 0.4% on UPI transactions above Rs 2,000 made to businesses, while person-to-person (P2P) payments are likely to remain exempt.The Taxation and Other Laws (Amendment) Bill, introduced in Parliament on Tuesday by Finance Minister Nirmala Sitharaman, proposes removing the existing restriction that prevents banks and payment service providers from charging an MDR on notified electronic payment modes. Government officials said no decision has yet been taken on when the proposed changes would come into effect.So does this mean that if you pay for goods at the local merchant, you will bear an additional charge?RBI governor Sanjay Malhotra on Wednesday said that it is premature to comment on how the cost would come about.“It is very premature to talk right now. The government is still carrying out the amendment. The costs have to be paid by someone. We all want that this public infrastructure should continue to strengthen. Let’s wait and watch for further developments on this,” he said at the post monetary policy press conference.Asked whether the end-user will have to bear the cost, Malhotra said, “Please keep in mind that ultimately it is the consumer in some way or the other who’s paying. So, it may not be the same consumer. It may be the general economy, and you don’t get to see it directly.”“The cost is already getting passed on. It may not be directly on to the very user, but someone is paying the cost. This is what I meant when I said someone will have to pay the cost. What is important is that we continue to invest and we continue to find the means, whether it is MDR or other things. Let’s wait and see how the situation evolves,” he added.
Rs 2,000 threshold being considered
According to official estimates, the Rs 2,000 threshold would cover only around 5% of all UPI transactions, although these account for nearly 65% of the total value processed on the platform.As a result, routine purchases such as milk, vegetables, groceries, or payments for auto-rickshaws and taxis are unlikely to be affected. UPI processed 23.7 billion transactions worth Rs 29.9 lakh crore in July.Also Read | US-Iran conflict, El Nino: Why RBI did not hike repo rate despite headwinds“Even if implemented, 95% of the transactions will not face the merchant discount rate. Besides, not all businesses are going to pass on the fees, which will be a small amount,” an official told TOI.Industry executives said the government is also expected to prescribe an upper limit on the maximum MDR that can be charged.“Unlike credit cards, there is no funding cost involved so it makes sense to have a ceiling once the costs are covered,” said an industry source.Currently, both credit and debit card transactions attract an MDR, although most merchants absorb the cost instead of passing it on to customers. For credit cards, where MDR is not regulated, the fee can be as high as 3% of the transaction value. Debit card transactions of up to Rs 20 lakh are subject to a maximum MDR of 0.4%, while transactions above that threshold can attract charges of up to 0.9%.
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