Centre Reinstates MDR on UPI Payments and Expands Tax Incentives for Contract Manufacturers.

The government has proposed significant amendments to the Payment and Settlement Systems Act, enabling the introduction of a Merchant Discount Rate (MDR) on UPI payments specifically for large merchants. This change comes alongside a decade-long extension of tax breaks for foreign companies in the electronics manufacturing sector, which is part of broader legislative reforms encapsulated in the Taxation and Other Laws (Amendment) Bill. The amendments aim to provide the Central government with the authority to specify which payment instruments will be exempt from MDR, a departure from the current structure that effectively prohibits such charges on UPI and RuPay transactions.

For the average citizen and market participants, these amendments indicate a shift in the digital payment landscape. While consumers remain exempt from any direct charges when using UPI, large merchants may face an increased cost of doing business due to MDR. This could potentially lead to higher prices for goods and services as merchants may pass on these costs to consumers. Furthermore, the electronic manufacturing tax breaks could stimulate growth in a sector critical for job creation and technological advancement, attracting more foreign investment and enhancing local manufacturing capabilities.

In the long-term outlook, the government’s actions suggest a strategic focus on both the digital payment ecosystem and domestic manufacturing competitiveness. The empowerment of the Central government to dictate fee-free payment mechanisms may lead to increased regulatory changes in the future. Additionally, the extension of tax incentives for electronics manufacturing aligns with global trends aimed at fostering innovation and production resilience. Stakeholders should anticipate further regulatory developments and market adjustments as the Bill progresses through Parliament and as these policies are implemented within the economy.

Source: The Hindu

(Expert Note: This report was independently prepared by the Wealthova Economy team.)