Published On: Sun, Dec 17th, 2017

Govt to bear MDR charges on digital transactions up to Rs 2,000

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Best-Credit-CardsNew Delhi  : To promote digital transactions, the Union Cabinet today decided that the transaction charges or Merchant Discount Rate (MDR) for using debit cards, BHIM UPI and Aadhaar-enabled payments up to Rs 2,000 will be reimbursed by the government to the banks for a period of two years.

IT Minister Ravi Shankar Prasad said for all the transactions less than Rs 2,000 in value, the consumer and the merchant will not suffer any additional burden in the form of MDR thereby leading to greater adoption of digital payment modes for such transactions.

The new dispensation will kick in from January 1 and the government subsidy on MDR by reimbursing the same to the banks will have an impact of Rs 2,512 crore on the exchequer.

The government estimates that since transactions of Rs 2,000 or less account for sizeable percentage of transaction volume, it will help to move towards a less-cash economy.

MDR is a transaction charge on digital payments and when a payment is made at a merchant point of sale, MDR is payable by the merchant to the bank. Due to this reason, many people make cash payments despite having debit cards. Similarly, MDR is charged on payments made to merchants through BHIM UPI platform and AePS.

Traders body CAIT had recently suggested that the government should subsidise MDR directly to the banks, if there is any shortfall in revenue while protecting both merchant and consumer from burden of MDR.

A committee comprising Secretary, Department of Financial Services, Secretary, Ministry of Electronics & IT and the CEO, National Payment Corporation of India (NPCI), will look into the industry cost structure of such transactions which will form the basis to determine the levels of reimbursement.

In its recent monetary policy, the RBI had announced rationalisation of MDR rates. The RBI said in recent times, debit card transactions at ‘Point of Sales’ have shown significant growth.

Move to cost exchequer Rs 2,512 crore 

  • The merchant discount rate (MDR) will be borne by the government for two years with effect from January 1, 2018 by reimbursing the same to the banks
  • The move will have an impact of Rs 2,512 crore on the exchequer
  • MDR is charged on payments made to merchants through BHIM UPI platform and AePS (Aadhaar-enabled Payment System)


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