No MDR Charges On Debit Card, UPI, Aadhar Digital Transactions by Central Govt.

December 16, 2017 | Last Modified: December 16, 2017 at 10:54 am | Category: Central Government, Pradhan Mantri Yojana

Central Government approves the proposal to waive off Merchant Discount Rate (MDR) Charges to promote the use of Digital Transactions. Subsequently, people are not required to pay any MDR Charges on transactions through Debit Card, Aadhar enabled Payment Systems (AePS) and UPI based modes. However this discount is applicable only for transactions below Rs 2000 for the financial year 2018-20.

Central govt. will borne the entire Merchant Discount Rate (MDR) charges itself and will provide reimbursement to the banks. This reimbursement is for the upcoming 2 years starting from 1 January 2018. Subsequently, govt. will spend Rs. 1050 crore for the financial year 2018-19 and Rs 1462 in the financial year 2019-20. This move will cost Rs 2512 crore to the central government.

This step of the central govt. to waive off the Merchant Discount Rate on Debit Card, AePS, BHIM & UPI transactions of up to Rs 2000 will boost the entire economy. This step will increase digital transactions and realize the dream of ‘Digital India’ and making India a ‘Cashless’ economy.

Highlights of Decision for Removal of MDR Charges

This move of the central government will lessen the burden on the merchants and customer from additional charges of MDR. Subsequently, there would be a greater adoption of digital modes of transaction. Moreover, transactions below Rs 2000 volumes up to a greater extent in the economy which will leap India towards a cashless economy. The important features are as follows:-

  • MDR charges are removed from the transactions through Debit Card, BHIM & UPI based, Aadhar enabled Payment System.
  • Subsequently, this move of the Central govt. is going to start from 1 January 2018.
  • Accordingly, govt. will bear the MDR charges below Rs 2000.
  • For its successful implementation, govt. has allotted Rs. 1,050 crore for FY 2018 and Rs 1,462 crore for FY 2019 (total sum of Rs. 2,512 crore).
  • Furthermore, govt. will give reimbursement to the banks for all transactions.

Need for this decision – This decision is needed because traders/ merchants have to pay MDR to the banks which they take from the consumers in case of digital transactions. So consumers forbid to make payment through digital mode, instead they make cash payment. So to encourage Digital Transactions, govt. makes this move.

Implementation of Decision

— Central govt. will form a committee to determine the cost of reimbursement comprising of the following members:-
a) Secretary, Department of Financial Services.
b) Secretary, Ministry of Electronics & Information Technology.
c) CEO, National Payment Corporation of India (NPCI).
These members will keep an eye on the structure of industry cost of such transactions. Afterwards on the basis of their reports, govt. will provide reimbursement to banks.

RBI MDR Charges

Merchant Discount Rate (MDR) refers to the rate which a bank charges from Merchant for providing services of Debit and Credit Card at Merchant Point of Sale (PoS). Accordingly, this cost is transferred by the merchant to the customer. Similarly, there are MDR charges while making payment through BHIM UPI Platform and AePS. The latest rates of RBI on MDR charges are as follows:-

  • MDR Charges for Traders on Taking Payment through Debit Card
    • Traders having annual turnover less than 20 lakhs have to pay 0.40% as MDR with upper limit of Rs 200 per transaction.
    • In addition to this, traders whose annual turnover is more than Rs 20 lakh have to pay 0.9% as MDR with upper limit of Rs 1,000.
  • MDR Charges for Traders on Taking Payment through QR Code – This is 10 basis point less than payment through Debit Card which stands at the following rates:-
    • Traders having annual turnover less than 20 lakhs have to pay 0.30% or Rs 200 per transaction as MDR (whichever is lower).
    • In addition to this, traders whose annual turnover is more than Rs 20 lakh have to pay 0.8% or Rs 1000 as MDR (whichever is lower).
  • MDR Charges for Traders on UPI Based Payment
    • RBI fix the MDR rate at 0.25% for all the transactions below Rs. 1,000.
    • Moreover, MDR rate is 0.65% for all other transactions.

Accordingly to boost the digital transactions, the Central govt. headed by Narendra Modi approves this decision. This removal of MDR charges move will benefit customers as well as the merchants and will further boost the Indian economy. This move is essential for making India a cashless economy.

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