By Shailesh Yadav

New Delhi [India], September 17 (ANI): The government on Thursday refuted claims that the newly introduced Merchant Discount Rate (MDR) on UPI transactions was imposed under external pressure, calling the allegation 'false and misleading,' according to government sources.

Officials clarified that there is no separate GST levied on MDR charges. While GST will apply to MDR on UPI transactions, businesses will be able to claim full input tax credit against it and set off the liability, meaning the government does not expect to earn any net revenue from the levy.

Sources dismissed talk of a fresh GST burden on UPI users as a 'rumour,' adding that any residual concerns would be examined by the GST Council.

Sources noted that UPI has scaled dramatically since its launch from 1.78 crore transactions in its early years to over 24,000 crore annual transactions currently, with more than 6.5 crore merchants now on board and operations extended to 11 countries.

Following amendments to the Payment and Settlement Systems (PSS) Act, a government notification dated September 14 kept UPI and RuPay debit card transactions up to Rs 2,000 free of charge. Beyond that threshold, the National Payments Corporation of India (NPCI) has introduced a tiered MDR structure, with peer-to-peer (P2P) transactions remaining exempt, and other categories facing charges ranging from a nominal Rs 5 flat fee to about 0.4% for select verticals.

Countering the 'external influence' narrative, officials pointed to a US Trade Representative report that had sought parity for foreign-operated credit cards on the UPI network, a demand India did not accede to. Officials argued that RuPay debit cards have deliberately been kept MDR-free, giving them a competitive edge over cards issued by foreign players, which they said undercuts any suggestion of the policy favouring outside interests.

The MDR was also framed as a response to a 2020 mandate capping any single UPI player's market share at 30%, which could not be enforced in the absence of a sustainable revenue model for newer, smaller fintech entrants.

Officials said the charges are designed to encourage competition by giving smaller players a viable business case, while keeping the vast majority of transactions, about 96%, largely from small traders with turnover below Rs 40 lakh, shielded from any fee.

On implementation, sources said the 0.02% MDR charge introduced for stock market transactions followed consultations with SEBI, stock exchanges and other stakeholders, and that discussions have also been held with payment aggregators.

The government said it would monitor the rollout, slated for October 15, closely to ensure merchants do not pass on the charges to consumers, and expressed confidence that the MDR would not trigger a shift back to cash payments or a decline in UPI usage.

Officials also said that they don't see much increase in cash transactions due to MDR. 'We are confident that there will be no increase in cash transactions and also don't expect UPI transactions to fall after the rollout on 15 th October.' (ANI)