75% traders may not face UPI levy, says NPCI MD & CEO Dilip Asbe | Finance News

Around three-fourths of India’s more than 60 million digital-payment-accepting merchants have never recorded a transaction of over ₹2,000 and are insulated from the proposed levy on certain Unified Payments Interface (UPI) payments, National Payments Corporation of India (NPCI) Managing Director and Chief Executive Officer Dilip Asbe said on Thursday. 

Asbe’s comment on the impact of the new 0.4 per cent levy on UPI transactions above ₹2,000 comes at a time traders and business associations across the country have announced a ‘no UPI day’ on October 2, in protest. The levy comes into force on October 15. 

Merchants argue that given the low margins in their businesses, a recurring cost to accept digital payments, could add to their expenses. The Opposition Congress party called it a ‘UPI tax’, urging the government to withdraw it. 

 

A finance ministry official on Thursday said that the Goods and Services Tax (GST) Council is likely to consider giving relief on the GST applicable on MDR charges. The government will also work with the Indian Banks’ Association (IBA) to ensure that the MDR charges are not passed on to consumers by merchants, the official said, adding that the IBA has been asked to run a campaign to address misinformation related to MDR charges. 

Speaking at the SBI Banking and Economic Conclave in Mumbai, Asbe explained that about 80 per cent of the total merchant discount rate (MDR) value collected will come from businesses that record over ₹1,000 crore in annual gross merchandise value (GMV) and 10 per cent value will come from merchants recording over ₹1 crore in annual GMV. These businesses, who will contribute about 90 per cent of the total MDR value, accept MDR-bearing instruments such as credit cards and are unlikely to pass on any costs to customers. 

He cautioned that the remaining 10 per cent of merchants by MDR value are at risk of passing on MDR costs. But, banks, payment aggregators, acquiring banks and the NPCI will ensure such charges are not passed on to customers, he said. 

 

“The real risk of a consumer getting charged is just 10 per cent of the overall value (of MDR collected),” he said,

India has more than 60 million merchants who accept digital payments.

 

“We have about 60 million unique merchants. 75 per cent of these merchants have not seen a transaction above ₹2,000. So, there is no impact of our policy on them,” he added.

 

His comments come at a time when traders and business associations across India have announced a “No UPI Day” on October 2 to protest the 0.4 per cent merchant discount rate (MDR) on UPI transactions above ₹2,000 from October 15.  

 

He further added that the industry does not expect major impact on UPI transaction volume and value because of the levy.  

 

Last week, NPCI notified MDR on UPI transactions made to select merchants. The apex retail payments body introduced a 0.40 per cent fee on transactions above ₹2,000 made to merchants. An MDR is not applicable on customers. It is a fee that a merchant pays to accept digital payments such as UPI, debit cards and credit cards.

 

Peer-to-peer transactions are free of any MDR.

 

Groceries and supermarkets were the largest category by UPI spending in August, accounting for ₹ 86,882 crore across 3.99 billion transactions, according to NPCI data. Debt collection agencies followed with ₹73,983 crore across 214.98 million transactions, while securities brokers and dealers recorded ₹63,667 crore across 84.12 million transactions.

 

The central government expects the GST Council, which has state finance ministers as members, to consider lowering the 18 per cent GST rate on MDR charges via UPI, a finance ministry official said on condition of anonymity. Union Finance Minister Nirmala Sitharaman chairs the Council.

 

Since the GST rates come under the ambit of the GST Council, the Centre or the Union Ministry of Finance cannot alone take a call on the 18 per cent GST, the official said. However, the Centre expects the Council to “take a favourable view” on giving relief when its review comes up for discussion, the official added.

 

As UPI transactions are services, the MDR charges on them would attract GST. But businesses registered under GST should then be able to claim input tax credit (ITC) on the tax paid.

 

The official did not specify if GST on MDR is expected to feature in the agenda for the Council’s meeting on October 7.