UPI Payments Above Rs 2,000 Face 0.4% MDR and 18% GST From October 15; Government Rejects Rollback Demand:

A dispute has come up between the business community and the government on the introduction of a Merchant Discount Rate (MDR) on UPI transactions of more than Rs 2,000. Under the proposed framework, UPI payments above the threshold will attract an MDR of 0.4%, with the charge capped at Rs 300 per transaction. The revised fee structure is scheduled to come into effect from October 15.

Business organizations have opposed the move and demanded that the government withdraw the charge. However, a senior Finance Ministry official said the decision has already been taken and there is no plan to reverse it.

Tax experts said merchants will also have to pay 18% GST on the MDR. However, businesses can claim input tax credit on this GST, which could reduce the overall tax impact.

For some sectors, a lower MDR of Rs 5 per transaction will apply to payments above Rs 2,000. These include railways, telecom services, insurance and fuel. School fee payments above Rs 2,000 will also attract a fixed MDR of Rs 5 per transaction.

The government has said the decision is needed to make the UPI payment system financially sustainable. According to government sources, a Parliamentary Standing Committee on Finance had earlier warned that the zero-MDR system puts pressure on government finances and limits investment in digital payment infrastructure.

The new MDR system has also been challenged in the Supreme Court. Advocate Anjan Dutta has filed a petition arguing that the decision is arbitrary and discriminatory and could increase the financial burden on businesses.

The All India Petroleum Dealers Association has also opposed the move. It has written to the Finance Minister asking for petrol pumps to be exempted from the MDR. Petrol pumps are already set to charge only Rs 5 per transaction for UPI payments above Rs 2,000.

NITI Aayog Vice Chairman Ashok Kumar Lahiri defended the decision, comparing taxation to the way a bee collects honey from a flower- slowly and without damaging it.

The Finance Ministry has also rejected claims that the MDR decision was made because of foreign pressure. In a post on Instagram, the ministry said India's policy decisions are taken independently and that claims of foreign influence are false.