Digital Transactions up to Rs 2000 to be Reimbursed by Govt, Consumers Spared the Charges

New Delhi: In order to further incentivise digital transactions and move towards a cashless economy, the Cabinet Committee on Economic Affairs (CCEA) on Friday decided that merchant discount rate (MDR) for digital transactions up to Rs 2,000 will be reimbursed by the government and consumers don’t have to pay the charges.

“We have decided that MDR that was earlier paid by consumers will now be reimbursed by the government. This will hold for debit card, UPI, BHIM and Aadhaar enabled transactions. This is a big relief for small digital consumers,” said Union minister Ravi Shankar Prasad in a Cabinet briefing on Friday.

MDR is the rate charged to a merchant by a bank for providing debit and credit card services.

As per the latest notification, MDR charges for small merchants with an annual turnover of up to Rs 20 lakh has been fixed at 0.40 percent.

In case the annual turnover of a merchant is over Rs 20 lakh, the MDR charges would be 0.90 percent

Incentivising digital payments aims to target smaller transactions up to Rs 2000 which are mostly preferred to be done through cash.

Prime Minister Narendra Modi's primary agenda to pave way for a digital economy was reflected in his Independence Day speech at Red Fort where he asked citizens to cut down on cash transactions. He has also urged various government departments and ministries to collaborate in achieving a cash less economy. The IT Ministry headed by Union Minister Ravi Shankar Prasad is providing major assistance and is coming up with initiatives to popularise digital transactions.

The Union minister also speculated debit card transactions to go up to Rs 4,37,400 crore by the end of the current financial year. Debit cards contributed to transactions worth Rs 218700 crore from April to September.

To arrive at this decision, a meeting was held on the analysis of digital payments post demonetisation of Rs 500 and Rs 1,000 notes last November. The meeting was attended by Prasad and senior officials from the finance ministry and cabinet secretariat.

According to RBI data, digital transactions fell considerably in the last few months. From 67 crore digital transactions in November 2016, it had tremendously grown to 89 crores in March 2017. However, it again dropped to 84 crores in June.