According to Business-Today, a Parliamentary panel has called for the early rollout of a calibrated Merchant Discount Rate (MDR) on high-value digital transactions conducted through the Unified Payments Interface (UPI). The panel said the framework is essential to make the payments ecosystem financially viable and reduce the government's subsidy burden.
Legislative shift: Section 10A and the Income Tax Act linkage
Earlier this week, Parliament cleared amendments to the Payment and Settlement Systems Act, 2007, through a Bill that empowers the government to allow banks and other payment service providers to levy charges on transactions carried out through UPI and other electronic payment modes notified by the Centre, according to Business-Today. The amendments remove the existing legal restriction that barred banks and payment service providers from imposing an MDR on notified digital payment modes.
The legislation proposes amendments to Section 10A of the Payment and Settlement Systems Act, 2007, which currently prohibits banks and payment system providers from levying charges on electronic payments. It also modifies the linkage with Section 269SU of the Income Tax Act, under which businesses with an annual turnover exceeding Rs 50 crore are required to accept payments through specified electronic modes, including RuPay debit cards and BHIM-UPI QR codes. The government's objective, the article reports, is to introduce a nominal charge on selected digital payment transactions involving consumers and small businesses, while creating a sustainable revenue framework for banks, payment service providers (PSPs) and payment infrastructure companies.
The cost gap: Rs 2,000 crore support vs Rs 20,700 crore expenditure
In its report tabled in Parliament on Wednesday, the Standing Committee on Finance urged the Department of Financial Services under the Ministry of Finance to put an assessment of the long-term financial viability of defined-benefit and incentive-based schemes. Commenting on the incentive programme for promoting RuPay Debit Cards and low-value BHIM-UPI transactions, the Committee noted that the budgetary allocation of Rs 2,000 crore to compensate for losses arising from the zero-MDR regime unnecessarily increases the Department's Demand for Grants while meeting only around 10 per cent of the industry's actual operating costs.
| Metric (as reported by Business-Today) | Value |
|---|---|
| Budgetary allocation compensating zero-MDR losses | Rs 2,000 crore |
| Industry's estimated operational expenditure | Rs 20,700 crore |
| Budget support as a share of industry operating costs | ~10% |
| Turnover threshold for mandatory e-payment acceptance (Section 269SU) | Rs 50 crore |
The report said that, acting on the Committee's earlier recommendation highlighting the need for a sustainable revenue framework, legislative provisions enabling a tiered MDR structure had subsequently been introduced. Even so, the Committee, chaired by senior BJP leader Bhartruhari Mahtab, expressed concern over the wide gap between the Rs 2,000 crore budgetary support and the industry's estimated operational expenditure of Rs 20,700 crore.
What a delayed rollout would mean
The report added that although the necessary legal provisions are now in place to introduce a calibrated MDR on high-value transactions, any delay in notifying and implementing the framework would leave payment service providers reliant on inadequate government support, potentially affecting investments in cybersecurity, fraud prevention and payment network infrastructure.
"The Committee, therefore, reiterates the recommendation to expedite the implementation of a self-reliant, tiered revenue framework for higher-value merchant transactions while safeguarding small merchants and P2P transfers, thereby transitioning the digital payments ecosystem to a self-sustaining model," the report said.
What merchants and marketplace operators need to do
For sellers and marketplace operators, the compliance anchor is Section 269SU of the Income Tax Act: businesses with annual turnover exceeding Rs 50 crore are already required to accept payments through RuPay debit cards and BHIM-UPI QR codes. A calibrated MDR on high-value transactions, once notified by the Centre, would add a per-transaction cost to those mandatory acceptance channels.
- Track the notification: The committee reiterated its recommendation to expedite implementation, but according to Business-Today the calibrated MDR framework has not yet been notified.
- Expect tiered charges on higher-value merchant transactions: The committee recommended a self-reliant, tiered revenue framework for higher-value merchant transactions while safeguarding small merchants and P2P transfers.
- Review high-value UPI acceptance costs: Businesses above the Rs 50 crore turnover threshold already face a mandatory acceptance obligation under Section 269SU; a notified MDR would layer a per-transaction cost on top.
- Monitor PSP infrastructure signals: The report warns that delayed implementation could leave payment service providers reliant on inadequate government support, potentially affecting investment in cybersecurity, fraud prevention and payment network infrastructure.
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