New Delhi: The government plans to reach out to traders to clear any lingering doubts that they have about the Merchant Discount Rate (MDR) that will be applicable on UPI transactions above Rs 2,000, a senior official said. 

Transactions up to Rs 2,000 continue to have zero MDR and therefore zero GST impact.

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. RuPay cardholders also will not be charged anything, the official said.

The government has ruled out any rethink about MDR, which will be levied from October 15, and this date will not be extended, the official said.

The Indian Banks Association plans to come up with full-page ads on UPI and MDR in order to dispel misconceptions on certain issues and clarify the role of banks.

The official further said that 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 official 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, he added.

Petrol pump dealers have already spoken with senior Petroleum Ministry officials about their concern over the possibility of their commission margins being reduced.

The new UPI framework levies an MDR of Rs 5 per transaction on petrol and diesel purchases above Rs 2,000. Such transactions account for around 30-40 per cent of total purchases across retail outlets in the country, according to pump owners.

Petroleum Ministry officials sought to explain the rationale behind introducing MDR, which was required to support the development of the next layer of India’s UPI digital infrastructure.