Depositing pension funds via UPI could become costlier; PFRDA approaches government regarding MDR

There may be relief regarding the charges levied on NPS deposits made via UPI. The PFRDA has requested the Finance Ministry to exempt these contributions from the Merchant Discount Rate (MDR). A decision is pending, and a favorable outcome could bring relief to investors.

Important news has emerged regarding UPI payments for those investing in the National Pension System (NPS). The pension regulator, PFRDA, has requested the Finance Ministry to exempt subscribers making voluntary NPS contributions from the UPI Merchant Discount Rate (MDR).

The regulator argues that this is not a payment made to a merchant, but rather a process of depositing funds for an individual's own retirement savings. New rules concerning the MDR on UPI payments are set to come into effect shortly after Diwali. The proposed framework includes provisions to levy charges on certain eligible merchant transactions.

Consequently, for individuals depositing large sums into NPS accounts via UPI, it is crucial to determine how their payments will be categorized. The PFRDA wants UPI payments made through 'NPS D-Remit' to be classified as person-to-person (P2P) transactions. Transfers falling under this category are not subject to the MDR. However, while the regulator has sought this exemption, approval is not yet guaranteed.

What is MDR, and what could the charges be?

MDR is a fee applicable to certain merchant payments under established rules. According to the new framework, a charge of up to 0.4% has been set for eligible merchant transactions exceeding ₹2,000. The maximum cap for this charge is fixed at ₹300 for transactions of ₹75,000 or more.

Meanwhile, different rates have been set for certain other sectors. A rate of 0.02 percent is stipulated for payments related to capital markets, such as those for mutual funds and securities. However, whether actual charges will apply to NPS contributions will depend on the classification of the specific transaction and the final decision.

What is the NPS D-Remit feature?

The D-Remit facility allows NPS subscribers to deposit contributions into their pension accounts. Through this, subscribers can transfer funds to their Tier-1 and Tier-2 accounts. This facility utilizes a unique virtual account number, and subscribers can also make UPI payments using a personalized QR code. The facility was launched in 2022.

Impact on millions of NPS subscribers

There are approximately 2.34 crore NPS subscribers, and assets worth ₹17.36 lakh crore (17.36 trillion rupees) are being managed under the scheme. Consequently, a decision regarding charges on UPI contributions could affect a large number of individuals saving for retirement. Currently, the PFRDA has submitted its proposal to the Department of Financial Services (DFS) under the Ministry of Finance. A decision from the concerned authorities is now awaited. Until an official decision is announced, those contributing to NPS via UPI should not assume that the proposed exemption has received final approval.