Ministry of Finnace to engage with banks and traders to allay Merchant Discount Rate concerns

New Delhi: The finance ministry will reach out to the Indian Banks Association (IBA) to ensure Merchant Discount Rate (MDR) charges are not passed on to consumers and officials will also meet traders' bodies to allay their concerns over the levy, officials said.

"We would talk to IBA on execution....Their members operate the POS machines," an official said, adding the move to bring MDR on Unified Payment Interface (UPI) is in line with a recommendation by a parliamentary panel comprising opposition members. The official said apprehensions of consumers shifting back to cash due to merchant fees on UPI are misplaced.

The Goods and Services Tax Council could look at the levy of 18% tax on MDR UPI transactions above Rs 2,000. "We expect the Council to be more inclined to be reasonable on this and take a favourable decision as this concerns the common man," the official said, adding that no formal proposal on any tax rate change is on the agenda for the October 7 meeting that will focus mainly on procedural relaxations.


The National Payments Corporation of India or NPCI has notified a 0.4% MDR on person-to-merchant UPI transactions above Rs 2,000 from October 15. MDR charge is capped at ₹300 for transactions of Rs 75,000 and above. Transactions by merchants with monthly person-to-merchant UPI collections of less than Rs 1 lakh will not face MDR.

The official said the government does not impose MDR, which is neither a tax nor a cess. The amount will be shared among banks and other entities in the UPI ecosystem. "The government will not get anything from imposition of MDR, which is being levied by those providing the service," the official said, adding that the subsidy provided by the government to service providers was not enough and these charges were needed to help the fintech ecosystem develop further.

Moreover, the official said several carve-outs had been already provided to ensure small merchants or traders do not get impacted. Exemption has been provided for transaction upto ₹2,000 and person-to-person transactions have been kept out, which will ensure that very small traders are spared. IBA, the official said, will also run an awareness campaign to dispel various misconceptions about MDR, which is already levied on transactions carried out using cards including Mastercard, Visa or American Express. The government has exempted RuPay debit transactions from MDR.