Govt may introduce charges on UPI payments above Rs 2,000 to businesses: Reports

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The Union government may introduce merchant charges on Unified Payments Interface (UPI) transactions above Rs 2,000, Reuters reported citing industry and regulatory sources. The report says that the  government is mulling a levy of 0.3–0.5% as merchant discount rate (MDR) on UPI transactions above Rs 2,000 to businesses exceeding an annual turnover of Rs 1.5 crore. Person-to-person (P2P) UPI transfers will continue to remain free.

The proposal is part of the Taxation and Other Laws (Amendment) Bill, introduced in Parliament by Union Finance Minister Nirmala Sitharaman on Tuesday, August 5. According to Economic Times, the Bill proposes amendments to the Payment and Settlement Systems Act, 2007, empowering the Union Government to notify electronic payment modes on which banks or payment system providers cannot levy charges. 

Through this, Reuters said, the Bill only establishes the legal authority to levy an MDR and does not spell out the quantum of the fee or the categories of transactions to which it would apply.

Officials quoted by Reuters said charging an MDR on payments above a certain threshold was one of two options the government is considering. The second option would be to levy fees based on a merchant’s annual turnover. The second would “apply charges only to large merchants while keeping UPI payments free for consumers and small businesses.”

The proposed amendment in the Taxation and Other Laws (Amendment) Bill will not automatically introduce charges on UPI transactions, but will remove the legal prohibition, allowing the government to notify MDR for specified digital payment modes at a later stage.