Over 96 pc UPI transactions, small traders exempt from MDR: NPCI

New Delhi, Sep 22 (IANS) National Payments Corporation of India (NPCI) on Tuesday refuted reports in some sections of the media that have alleged that GST on UPI Merchant Discount Rate (MDR) will burden small merchants and make digital payments costly. 

This is incorrect. MDR applies only to P2M transactions above Rs 2,000. Transactions up to Rs 2,000 continue to have zero MDR and therefore zero GST impact, NPCI said in a statement. 

Government data indicates that transactions of up to Rs 2,000 constitute more than 96 per cent of UPI merchant transaction volume. As a result, the overwhelming majority of UPI payments will not attract MDR and hence no GST on MDR.

Merchants with monthly UPI receipts of up to Rs 1 lakh are not liable to pay MDR and therefore do not even have the issue of GST on MDR. Hence, apprehensions that GST on MDR will impose an additional burden on merchants are misplaced. The overwhelming majority of UPI transactions and small merchants remain unaffected, the statement pointed out.

Further, GST paid on MDR by a merchant will be adjusted against the GST payable on the sale of goods, in the same manner that input taxes are set off against output tax liability. Consequently, merchants do not bear the cost of GST on the MDR amount paid by them, the statement added.

The new UPI framework has no impact on any person to person transactions. UPI will continue to remain completely free for all person-to-person transactions, irrespective of the amount transferred, according to an explainer issued by the Finance Ministry earlier.

Earlier, the Finance Ministry clarified that MDR is neither a tax nor a charge collected by the Government or NPCI. It is distributed among payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI ecosystem.

A nominal MDR of 0.4 per cent will apply only to P2M transactions above Rs 2,000. The MDR will be shared among payment ecosystem participants, including banks, payment service providers and UPI application providers. For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction.

Transactions above Rs 2,000 in essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of Rs 5 per transaction. The flat charge will provide cost certainty for critical public services and businesses operating on narrow margins.

--IANS

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