The exemption protects the large majority of UPI merchant payments by count.
“CMAI welcomes the decision of the UPI and Services Steering Committee to defer the Merchant Discount Rate (MDR) on select person-to-merchant (P2M) UPI transactions until after Diwali. The deferment will help the sector get through the festive season without disruption. In the longer term, we urge the Government and NPCI to review the framework, particularly its impact on smaller retailers operating on very thin margins,” said Santosh Katariya, President Clothing Manufacturers Association of India (CMAI).
Under the framework, a 0.4 per cent MDR applies to specified P2M UPI transactions above Rs 2,000, capped at Rs 300 per transaction. Transactions up to Rs 2,000 and person-to-person transfers remain free, and small merchants collecting up to Rs 1 lakh a month through existing QR codes stay under zero MDR. We recognise these safeguards and the intent behind them. The framework also marks the end of a zero-MDR regime in place since January 2020, which helped UPI reach its present scale.
“The festive quarter is the single most important trading window for apparel retail. UPI has become the default payment mode at the store counter, and any change in the cost of accepting it directly affects checkout practices, reconciliation and consumer experience. Introducing the charge in the middle of the season would have required retailers to reconfigure billing and accounting systems and brief store staff at the point of peak footfall. Deferment avoids this and gives the trade time to prepare. We thank NPCI and the Government for their responsiveness to the concerns raised by the retail sector,” further added Santosh Katariya, President Clothing Manufacturers Association of India (CMAI).
The charge is modest in absolute terms, at Rs 8 on a Rs 2,000 transaction and Rs 40 on Rs 10,000. For retailers operating on very thin margins, however, it is a further cost on top of rent, wages and working capital. Larger retailers have the scale to absorb it or negotiate it with their acquiring partners. Smaller retailers, who often sit just above the small-merchant exemption, do not have that room. Retailers will also have to separate transactions above and below Rs 2,000 for reconciliation, which is an added compliance task for businesses with limited back-office capacity.
The exemption protects the large majority of UPI merchant payments by count. Apparel purchases, particularly during the festive and wedding seasons, frequently cross Rs 2,000 per basket, so a larger share of apparel retail value will fall within the charge than the headline figure suggests. We urge the Government to consider whether the threshold is set too low.
Suggestions:
CMAI would request the Government and NPCI to consider the following before a new implementation date is notified:
- Revisiting the Rs 2,000 threshold, with data on its impact on apparel and other discretionary retail.
- Widening the small-merchant exemption beyond the current Rs 1 lakh monthly limit.
- A graded structure linked to merchant size, so that the cost is borne in proportion to capacity.
- Adequate advance notice of the new date, so that retailers can prepare their systems.
- A defined review after implementation, with specific attention to the effect on small retailers’ UPI acceptance.
CMAI supports the continued growth of UPI and a financially sustainable payments ecosystem. Our concern is that the transition should not push small retailers away from digital payments or squeeze their margins. We will engage constructively with NPCI and the Ministry of Finance, and we will share sector-specific data and member feedback to inform the review.