The Finance Ministry recently said that it will make budgetary provision for reimbursement of Merchant Discount Rates (MDR) charges applicable to banks on payments of government dues of up to Rs 1 lakh by debit cards, a move to promote digital transactions.
The MDR charges will be absorbed by the government for debit card payments up to Rs 1 lakh for tax, non-tax and other payments to the Central government.
Budget Division will make the necessary budget provision under relevant head of Account in the Demand for Grants of the Department of Economic Affairs for payment of MDR charges, as applicable, in respect of all receipt transactions of government the ministry said in a circular.
The collecting banks receiving Government of India dues, like tax revenue and other receipts through debit/credit cards would submit the claims of MDR charges to RBI periodically.
The Reserve Bank of India will reimburse banks' claims of MDR charges on government receipt transactions through credit to the bank and debit the government as per the budget provision. After scrapping higher denomination of currency notes, the government recently waived service charges on card payments of up to Rs 2,000. Besides, discounts have been offered for buying diesel and petrol through cards as also on insurance products.
MDR is a fee charged by bank from a merchant for providing debit and credit card services. Prime Minister Narendra Modi’s move to demonetise Rs 500 and Rs 1,000 notes has put the country’s digital banking infrastructure under sudden pressure. According to the latest RBI bulletin showing data from July to September, of the total 243 million credit card transactions (worth Rs 75,200 crore), which took place during this period, 241 million were over a PoS machine (worth Rs 74,200 billion).