Govt Likely To Tax UPI Transactions Above Rs 3000; Congress Criticises

Congress was quick to criticise the Modi government after reports surfaced that a new tax for UPI (Unified Payments Interface) transactions is likely to be introduced. According to reports, the Government is planning to reintroduce MDR (Merchant Discount Rate) for transactions over ₹3,000.

Targetting the Modi government, Congress through a Facebook post asked people that 'What will you call this kind of collection (taxation)?'

The aim is to help banks and payment service providers manage infrastructure and operational costs. According to sources, the MDR will be based on transaction value, not merchant turnover. Small UPI payments will remain unaffected, but larger transactions may incur merchant fees.

In January 2020, the zero-MDR policy was implemented. However, banks and payment service providers have expressed concerns about the rising costs of handling large digital transactions. UPI accounts for nearly 80% of retail digital transactions. The lack of MDR has reduced incentives for investment in this sector. Since 2020, UPI person-to-merchant transaction value has reached ₹60 lakh crore, indicating its deep market penetration and consumer trust.

Potential Changes in MDR Policy

The Payments Council of India has proposed a 0.3% MDR for large merchants on UPI transactions. Currently, MDR on credit and debit card payments ranges from 0.9% to 2%, excluding RuPay. Sources indicate that RuPay credit cards will remain exempt from MDR for now. Merchants pay this fee to banks or payment service providers for accepting digital payments.

A decision on this matter could be made within a month or two. The government plans to consult stakeholders like banks, fintech companies, and the National Payments Corporation of India. If implemented, the focus would shift from promoting UPI to ensuring the sustainability of the digital payment ecosystem in the long run.