The proposed 0.4% merchant fee on UPI transactions above Rs 2,000 will not be passed on to consumers, government sources said on Thursday.

Effective October 15, a 0.4% merchant discount rate will be levied on merchants for UPI transactions over Rs 2,000. However, no charge will be levied on person-to-person transactions regardless of the amount.

Dismissing criticism by Opposition parties, including the Congress, that it is a tax on consumers, government sources said that not a "single penny" from the proposed MDR will go to the government coffers.

The collected amount will be shared among banks and other entities in the UPI ecosystem, they added.

Of the total MDR collected, 40% will go to customers' banks, 30% to payment gateway, 20% to the UPI app and the remaining 10% to the sponsoring bank of the UPI app.

"MDR levy of 0.4% on UPI transactions above Rs 2,000 will not be passed on to the consumers. Banks, as well as the Indian Banks' Association, will address misconceptions related to MDR charges and their impact on users," they said.

Sources also clarified that MDR is neither a tax nor a cess or surcharge.

The sources further said that fear of consumers shifting back to cash due to merchant fee on UPI is misplaced.

They are also hopeful that the GST Council will review the 18% GST on merchant fee on UPI transactions over Rs 2,000 in the larger interest of consumers, as was done in the case of insurance premium.

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