A new framework proposing a 0.4% Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions exceeding ₹2,000 has triggered significant concern among businesses, particularly those operating with thin profit margins. Chartered Accountant Kanan Bahl has highlighted how this change could substantially increase operational costs, while a director at a pharmaceutical company shared a concrete estimate of the financial impact on his firm.
Significant Burden for Low-Margin Sectors
CA Kanan Bahl emphasized that for businesses with profit margins as low as 2-3%, the 0.4% UPI MDR could become a considerable financial burden. Depending on the exact margin, this charge could absorb roughly 13-20% of their gross profit, severely impacting their bottom line. Bahl stated, "UPI MDR is only going to burden the low margin businesses," underscoring the pressure on companies heavily reliant on UPI for collecting payments.
Pharma Company Estimates ₹1.2 Crore Annual Impact
Rahul Mamman, a Director at MPC Pharma Pvt Ltd, provided a detailed projection of the MDR's effect on his company. MPC Pharma has actively encouraged customers to use UPI over traditional methods like NEFT, cash, and cheques. Mamman revealed in a LinkedIn post that his company processes approximately ₹1 crore in UPI payments daily across its operations.
Based on the proposed 0.4% MDR, Mamman calculated that these charges could amount to about ₹40,000 per day, translating to an estimated annual cost of ₹1.2 crore. He asserted that "For a low margin business that is a major impact on our bottom line," and tagged the National Payments Corporation of India (NPCI) in his post, urging them to reconsider the framework. Mamman also indicated that his company might need to limit UPI acceptance for larger payments if the additional cost renders the payment mode uneconomical.
Framework Details and Exemptions
Under the revised framework, the 0.4% MDR applies to eligible person-to-merchant (P2M) UPI transactions exceeding ₹2,000, with an overall cap of ₹300 per transaction. Transactions below this threshold will remain exempt from the levy.
The framework also includes provisions for differentiated rates and exemptions to mitigate the impact on certain segments:
- Small Merchants: Merchants receiving up to ₹1 lakh per month through UPI QR codes are exempt from MDR, regardless of individual transaction size.
- Concessional Sectors: Specific categories such as railways, telecom, insurance, fuel, and utilities will incur a flat ₹5 MDR on transactions above ₹2,000, rather than the 0.4% rate.
- Capital Market Transactions: Payments involving mutual funds, brokers, and securities will attract a lower 0.02% MDR, subject to a ₹300 cap.
The varied rates mean that the impact of the new UPI MDR will differ significantly among businesses, depending on their merchant category, typical transaction sizes, and overall UPI collection volumes. However, for high-volume, low-margin businesses like many distributors and retailers, the added payment processing cost is set to become a critical factor in their payment acceptance strategies.