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CBDT or Income Tax Department on Sunday issued a circular notifying that some banks have been found charging MGR tax from merchants for payments made via UPI. CBDT stated in the circular that it has received complaints that banks are imposing MGR tax on merchants after allowing certain number of free transactions.
It has castigated the banks for such practices and said that these practices are a breach of section 10A of the Payment and Settlement Systems Act (PSS Act) as well as section 269SU of the IT Act. More importantly, CBDT has asked all banks to immediately refund the MDR or any charges collected on or after 1st January 2020 carried out using the electronic modes prescribed under section 269SU of the IT Act.
It has also asked the banks not to impose any charges including MDR charges on transactions carried through the said prescribed modes.
Notably, in October last year CBDT had inserted a new provision ‘section 10A’ in the PSS Act to waive off MDR charges applicable on merchants or any other concerned parties for transactions carried out through electronic modes. It further released a circular in December last year to state that these electronic modes include Debit card powered by RuPay, UPI including BHIM UPI and UPI QR Code including BHIM UPI QR Code.
While CBDT waived off MDR and other charges on the above mentioned electronic modes, Visa and Mastercard powered debit as well as credit cards were not part of this decision. For all those who are not aware, MDR or Merchant Discount Rate is a processing fees that merchants pay to bank for enabling payment through electronic modes like debit/credit cards.
MDR has become a thorny issue between the Indian government and digital payment industry. Digital payment players see MDR tax as a major hindrance in India’s quest to become a cashless economy.
