UPI Payment: There is another major update from the government regarding UPI. Starting October 15, a Merchant Discount Rate (MDR) of 0.4% will be levied on certain UPI merchant transactions exceeding ₹2,000. The government has offered some relief regarding the 18% GST applicable to this MDR. According to reports, the GST Council will review this 18% GST levy; however, no official decision has been made yet to remove or reduce the tax.
Understand the full details:
A 0.4% MDR will apply to ‘Person-to-Merchant’ (P2M) UPI transactions exceeding ₹2,000, starting from October 15. Additionally, 18% GST will be charged on this MDR amount. This means the GST will not apply to the entire UPI payment value but only to the MDR component. For instance, on a transaction of ₹1,000, if the MDR is ₹40, an 18% GST of ₹7.20 will be charged on that MDR.
Why is the government reviewing this rule?
Following the announcement of this rule, the business community is particularly concerned. Many merchants are not registered under GST, meaning they would be unable to claim Input Tax Credit (ITC) benefits. Reports indicate that the GST Council may discuss this issue extensively to provide relief to small business owners if deemed necessary.
Will the October 15 rule change?
The government has confirmed that the MDR will be implemented on October 15. This clearly means the new MDR system will come into effect on that date. However, the 18% GST component remains subject to review by the GST Council.
What are the potential benefits?
According to the NPCI, approximately 96% of UPI merchant transactions in the country are worth less than ₹2,000. Additionally, merchants with monthly UPI collections of up to ₹1 lakh will be exempted from MDR charges. This new rule will impact transactions involving certain large merchants.