SC asks Centre to explain UPI charges above ₹2,000, refuses to stay levy
Distilled Policy Brief
- The court issued notices to the Centre, RBI, and NPCI while hearing a petition challenging the Union Finance Ministry's framework imposing Merchant Discount Rate (MDR) on specified commercial UPI payments above ₹2,000.
- Under the framework, person-to-person (P2P) transfers and merchant payments up to ₹2,000 remain free, whereas general person-to-merchant (P2M) UPI transactions above ₹2,000 attract a 0.4 per cent MDR capped at ₹300 for transactions of ₹75,000 or more.
- The Centre clarified that MDR is a settlement fee shared within the payment ecosystem between banks and payment aggregators rather than a tax, with around 96 per cent of transactions remaining outside the charge.
🎯 Prelims High-Yield Examination Points
Merchant Discount Rate (MDR) is a processing fee shared among participating banks and payment service providers within the digital payment ecosystem, rather than a tax collected by the government.
⚖️ Mains Analytical & Syllabus Linkages
Evaluate the trade-off between ensuring economic viability for payment service providers through levies like MDR and maintaining zero-cost digital transactions to curb cash dependency and promote financial inclusion.
🎯 UPSC Prelims Practice Drill
With reference to the framework governing the levy of Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions, consider the following statements: 1. Person-to-Person (P2P) transfers above ₹2,000 attract a 0.4 per cent Merchant Discount Rate. 2. The Merchant Discount Rate is a settlement fee shared within the payment ecosystem between banks and payment aggregators, rather than a tax or government levy. 3. Person-to-Merchant (P2M) UPI transactions up to ₹2,000 remain free of MDR charges. Which of the statements given above are correct?
- [A] 1 and 2 only
- [B] 2 and 3 only
- [C] 3 only
- [D] 1, 2 and 3
▶ Reveal Official Answer & Analytical Explanation
Statement 1 is incorrect because Person-to-Person (P2P) transfers remain completely free; the 0.4 per cent MDR applies only to specified Person-to-Merchant (P2M) transactions above ₹2,000. Statement 2 is correct as the government clarified that MDR is neither a tax nor an expropriation fee, but a settlement fee shared between payment ecosystem players (banks and aggregators). Statement 3 is correct because merchant payments (P2M) up to ₹2,000 are explicitly exempt from MDR charges.
🏛️ Historical Twin PYQ Anchor (2021)
Consider the following statements regarding the "National Clean Air Programme (NCAP)": 1. It is implemented by the Ministry of Environment, Forest and Climate Change. 2. Central Pollution Control Board acts as the sole regulatory executive body.