However ₹2,000 just isn’t an introduced MDR threshold. Its significance comes from an older authorities incentive framework, whereas stories have cited the identical stage as one choice being thought of for a future merchant-fee regime.
The place did the ₹2,000 cut-off come from?
The ₹2,000 determine comes from the federal government’s UPI incentive scheme, earlier known as the ‘Incentive Scheme for Promotion of RuPay Debit Playing cards and Low-Worth BHIM-UPI Transactions (Particular person-to-Service provider)’. The cut-off has been used because the scheme started in FY2021-22 to establish low-value BHIM-UPI person-to-merchant (P2M) transactions eligible for incentives.
The scheme was designed to encourage digital funds, notably amongst small retailers, whereas supporting banks and different cost ecosystem members that would not get better prices by MDR.
In FY2024-25, the scheme was renamed the ‘Incentive Scheme for Promotion of Low-Worth BHIM-UPI Transactions (Particular person to Service provider – P2M)’, with an estimated outlay of ₹1,500 crore. Small-merchant UPI P2M transactions of as much as ₹2,000 certified for an incentive of 0.15 per cent of the transaction worth.
The motivation scheme, nonetheless, didn’t create the zero-MDR regime. UPI has been below a zero-MDR regime since January 2020 following amendments to Part 10A of the Fee and Settlement Programs Act, 2007, and Part 269SU of the Earnings-tax Act, 1961.
Underneath the FY2024-25 scheme, transactions above ₹2,000 at small retailers acquired no incentive however remained at zero MDR. Giant retailers additionally acquired no incentive, regardless of transaction worth, whereas MDR remained zero.
Tanvi Kanchan, affiliate director at Anand Rathi Share and Inventory Brokers, instructed Enterprise Customary that the rationale was to help small, price-sensitive retailers whereas maintaining the federal government’s subsidy invoice manageable.
“₹2,000 was initially a fiscal-targeting line for subsidy, not a payments-cost line,” she mentioned.
An outdated cut-off in a brand new MDR debate
The modification to Part 10A replaces the sooner reference to cost modes prescribed below Part 269SU of the Earnings-tax Act with a provision permitting the central authorities to specify, by notification, a number of digital cost modes on which banks and system suppliers can’t impose prices. It doesn’t itself impose an MDR, prescribe a fee or set ₹2,000 as a threshold.
Reuters reported earlier this month that policymakers had been contemplating completely different approaches, together with imposing MDR on transactions above a specified worth and linking prices to service provider turnover. One proposal below dialogue used ₹2,000 because the transaction threshold for bigger retailers. No closing framework has been notified.
Kanchan mentioned ₹2,000 ought to subsequently be considered as a attainable reference level somewhat than an present regulatory threshold.
Why ₹2,000 may make sense
There may be additionally a mathematical motive why ₹2,000 has emerged as a attainable reference level.
“Solely about 4 per cent of P2M UPI transactions had been above ₹2,000 in FY2025-26, however that slice accounted for roughly two-thirds of complete transaction worth,” Kanchan mentioned.
“That is the mathematical case for the brink is that it protects the overwhelming majority of transaction depend, routine purchases like milk, greens, groceries, whereas nonetheless letting the framework seize many of the worth shifting by the system, which is the place recoverable value genuinely concentrates,” she added.
Who would pay MDR?
MDR is a merchant-side cost, somewhat than a payment that’s routinely levied on the client. The federal government’s said intent is to maintain UPI free for customers and apply any future MDR solely to a restricted set of service provider transactions.
In keeping with Kanchan, the probably financial association would contain bigger retailers bearing the cost, with banks and cost service suppliers receiving a part of the payment to get better the price of processing and sustaining the funds infrastructure.
“Banks and cost suppliers would get a authorized path to get better processing, settlement and infrastructure prices immediately from massive retailers, somewhat than relying solely on central incentives,” Kanchan mentioned.
Nevertheless, whether or not retailers ultimately take up the price or go a few of it on by costs is but to be identified.
The ₹2,000 delusion
For customers and retailers, crucial level is that ₹2,000 just isn’t an introduced MDR threshold. Kanchan mentioned the largest false impression is that the prevailing incentive cut-off and a attainable future MDR threshold are the identical factor.
“As a result of each reference the identical quantity, it reads in public discourse as if the federal government has already determined ₹2,000 is the place UPI prices kick in,” she mentioned. “The truth is, policymakers are contemplating a ₹2,000 threshold, however the authorities has not formally confirmed this restrict.”
For now, a UPI cost above ₹2,000 doesn’t routinely appeal to MDR. The quantity has a transparent historical past within the authorities’s incentive structure and has emerged as one attainable reference level within the present coverage debate, however its function in any future UPI pricing framework stays undecided.
