UPI MDR GST at 18% to Impact Payments Above ₹2,000 Starting Oct 15

Merchants accepting higher-value UPI payments will face a new tax-linked cost structure from October 15. UPI person-to-merchant transactions above ₹2,000 will attract a merchant discount rate, and GST will apply only on that MDR charge, not on the transaction amount.

What Changes Under the UPI MDR GST Framework?

The new UPI MDR GST framework separates the payment value from the payment service charge. A customer paying ₹3,000 through UPI will not see GST applied on ₹3,000; the tax applies only to the merchant discount rate charged for processing and settlement.

Merchant discount rate, or MDR, is the fee charged to a merchant for accepting digital payments through a payment network. Under the proposed framework, merchants will bear this fee as a payment settlement service charge, and GST will apply to that service component.

Sivakumar Ramjee, Executive Director of Indirect Tax at Nangia Global, confirmed that GST will not touch the core transaction value.

How MDR and GST Apply by Transaction Type

Who Can Claim Input Tax Credit on UPI MDR GST?

Registered merchants with output GST liability can claim input tax credit, or ITC, on the GST paid on MDR charges. Input tax credit allows a business to set off GST paid on eligible input costs against the GST it collects on its own sales.

EY India Tax Partner Saurabh Agarwal said the credit would be available where the bank provides a statement showing the charges separately or issues a GST invoice. Merchants dealing in exempt goods and services may not get the same relief, as Ramjee noted that such businesses would have to bear the GST burden on MDR charges.

Why High-Value UPI Payments Are Increasingly Important

The share of person-to-merchant UPI transactions above ₹2,000 has risen steadily, from 15.1% in FY23 to 20.1% in the June quarter of FY27. The monthly value of such merchant payments stood at a reported ₹6 lakh crore, generating a gross GST estimate of about ₹432 crore a month before adjustments for exemptions, caps, and ITC claims.

How Revenue Estimates Vary Across Calculations

What Merchants Need From Banks for ITC to Work?

For the credit mechanism to function cleanly, the MDR charge must appear as a separately identified taxed service. Agarwal said merchants can use the credit where banks provide a statement indicating such charges separately or issue a proper GST invoice.

Documentation becomes central to the process. Without a separately identified charge or a valid invoice, claiming ITC could become harder in practice even where it remains available in principle.

Final Outlook

Source: https://economictimes.indiatimes.com