The proposed Merchant Discount Rate (MDR) on select high-value UPI transactions is neither a tax, cess nor a surcharge, and the collections will not accrue to the government, Finance Minister Nirmala Sitharaman said, rejecting criticism from Opposition parties.

The Finance Minister said the MDR is a charge within the digital payments ecosystem and is being levied by entities facilitating UPI transactions, including payment service providers, merchant's bank and other ecosystem participants.

"This is not a tax, this is not a cess, this is not even a surcharge. And the collection is not coming to the Consolidated Fund of India," Sitharaman told PTI.

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

She assured that the MDR will not be passed on to consumers and will be borne within the merchant payment ecosystem.

The National Payments Corporation of India (NPCI) has announced a 0.4% MDR on specified person-to-merchant UPI transactions above Rs 2,000 from October 15. Transactions up to Rs 2,000 and person-to-person transfers will continue to remain free.

Sitharaman said the charge would be shared among multiple participants in the payment ecosystem to help maintain technology infrastructure and support improvements and innovation in digital payments.

"This is not at all anything to do with the government," she said, adding that the MDR mechanism involved NPCI, merchants, banks, aggregators and other service providers.

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