The Centre has ruled out any rollback of the proposed Merchant Discount Rate (MDR) on certain UPI payments above Rs 2,000. A top official said that when a decision has been taken, there is no question of reversing it.
The government on Tuesday introduced a 0.4% fee on transfers worth more than Rs 2,000 made to merchants through the platform from October 15. The MDR is capped at Rs 300 for transactions of Rs 75,000 and above.
The government’s response on the rollback or rethinking on the MDR came after Leader of Opposition in Lok Sabha Rahul Gandhi said that the “UPI tax" should be withdrawn.
NITI Aayog Vice Chairman Ashok Lahiri backed the introduction of a nominal charge on UPI transactions, arguing that payment businesses need sustainable revenue models rather than relying on subsidies.
“It's part of the business,” Lahiri said, while responding to concerns that even a small charge could hurt neighbourhood kirana stores. He said a charge of 40 paise for every Rs 100 would be too small for consumers to notice.
“Do you think the kirana store from which you buy things, just because someone is charging 40 paise per Rs 100, will say, ‘No UPI, you don't pay’? You won't even feel it,” he said. He added, “You have to find ways of sustaining businesses without having to give subsidy. That's the point.”
With digital payments via UPI set to attract charges, retailers, fuel pump operators and other merchants who rely heavily on the platform expect disruption and have urged the Centre to provide exemptions. They believe the proposed 0.4% MDR could undermine the gains made in digital payment adoption and even dampen the festive-season sentiment.
The Retailers Association of India (RAI) said that as MSME retailers operate on thin margins, this burden creates a straightforward incentive to steer transactions back toward cash. It added that this could undo years of progress in digital payment adoption among India's smallest retailers, just as the festive season gets underway.
“Small merchants will now think twice about whether to accept cash or UPI," said RAI CEO Kumar Rajagopalan. He added that this cuts against the government's own formalisation agenda.
The Centre on Tuesday introduced a 0.4% fee on transfers worth more than Rs 2,000 made to merchants through the platform from October 15, while explicitly ring-fencing everyday person-to-person transactions as well as small payments from any charge.
The Clothing Manufacturers Association of India (CMAI) said that introducing MDR on UPI at the start of the festive season could not have come at a more challenging time for the industry. This period is critical for merchants, retailers and consumer-facing businesses, many of whom are already working hard to revive demand and improve margins," said CMAI President Santosh Katariya.
Adding another cost to digital transactions at this juncture risks putting further pressure on an ecosystem that is still finding its footing, he said. “UPI has been a powerful enabler of consumption and formalisation, and any move that increases the cost of acceptance needs to be carefully calibrated, particularly during the most important sales period of the year," Katariya added.
Petrol pump dealers have also urged the government to exempt fuel retailers from the newly introduced MDR on UPI, arguing that even a small payment charge could put additional pressure on already narrow margins.
All India Petroleum Dealers Association (AIPDA) said dealer margins have remained largely unchanged since October 2017, while expenses such as wages, electricity and regulatory compliance have increased. It warned that even a Rs 5 charge on each eligible UPI transaction could accumulate into a high cost for fuel retailers.
The dealers warned that if the exemption is not granted, some fuel stations may discourage or stop accepting UPI payments above Rs 2,000 to protect their margins.
