Merchant Discount Rate Changes for UPI Transactions
The Merchant Discount Rate (MDR) will be undergoing significant changes for specific UPI transactions exceeding Rs 2,000, with the Supreme Court declining to delay the implementation date of October 15. The court has issued notices to key stakeholders, including the Centre, Reserve Bank of India (RBI), and National Payments Corporation of India (NPCI), regarding a petition that contests this new framework. A bench led by Chief Justice of India Surya Kant, alongside Justices Joymalya Bagchi and V Mohana, has requested these entities to respond within four weeks. They are also seeking clarification on the legal basis and character of the charges involved, according to Bar & Bench.
Legal Challenges to the New MDR Framework
The petition brought forward by advocate Anjan Datta challenges a notification released by the Centre on September 14 and the MDR framework introduced on September 15. Concerns are raised regarding the legal foundation for imposing MDR on selected UPI transactions and the process by which this framework was established.
Understanding the New MDR Structure
Under the new structure, a 0.4% MDR applicable to identified person-to-merchant (P2M) UPI transactions will be enforced for amounts exceeding Rs 2,000, with a maximum charge of Rs 300 for transactions amounting to Rs 75,000 or more. However, UPI payments made to merchants for up to Rs 2,000, as well as person-to-person (P2P) transactions, will continue to remain free of charge.
Certain sectors, including railways, telecommunications, insurance, fuel, and agricultural inputs, will face a flat MDR of Rs 5 for transactions exceeding Rs 2,000. For transactions involving mutual funds, securities, stockbrokers, and dealers, the MDR will stand at 0.02%, capped at Rs 300.
Impact on Merchant Transactions and Clarifications from the Finance Ministry
The Finance Ministry has noted that this new framework stands to influence approximately 4% of merchant UPI transactions, leaving around 96% unaffected. They have clarified that the MDR is not a tax nor a fee collected by the government or NPCI, with the collected amount being distributed among various participants within the payments ecosystem.
Additionally, the Finance Ministry highlighted that banks are mandated to prevent merchants from passing the MDR charge onto consumers. The new framework also includes provisions for zero-MDR treatment for small merchants accepting up to Rs 1 lakh monthly via UPI.
This upcoming framework marks the end of the zero-MDR policy for specific UPI merchant transactions that has existed since 2020. The Supreme Court’s decision not to impose an interim stay means that the October 15 rollout will proceed as planned.