UPI Transaction Rules: A decision is coming soon regarding whether GST will be applied to the MDR (Merchant Discount Rate) on UPI transactions. According to PTI sources, the GST Council will make this determination on levying GST on UPI transaction MDR. Sources explained that GST applies to services, and the GST Council—led by the Union Finance Minister and including state Finance Ministers—makes these decisions. They noted, “We’re hopeful that with consumers’ best interests in mind, the GST Council will decide to impose 18 percent GST on the fees merchants pay for UPI transactions. This approach has already been applied to insurance premiums.”

The GST Council’s next meeting is scheduled for October 7. Sources also mentioned that the Council will primarily focus on process reform and simplification at this meeting. Tax rate adjustments won’t be on the agenda.

MDR takes effect from October 15

It’s important to note that the government has put in place a 0.4 percent MDR on UPI payments to merchants exceeding Rs 2,000, starting October 15. The fee caps out at Rs 300 for transactions of Rs 75,000 and above. That said, person-to-person transfers and smaller payments are excluded from this fee.

18 percent GST?

With the MDR system launching on October 15th, merchants will pay this fee for payment settlement services. Since businesses will pay this fee to process and settle digital payment transactions via payment networks, it qualifies for GST treatment and would be subject to 18% GST. Fortunately, businesses can claim input tax credit (ITC) on the GST paid for MDR. According to tax professionals, this could help lower the overall tax impact for businesses.

Meanwhile, official sources have stated that the government will not receive a single penny from the MDR charged on UPI transactions. The proceeds will go to various parties involved in the UPI system, including banks.

Meanwhile, MDR will not be charged from customers, and banks will launch awareness campaigns to dispel misconceptions about this. Sources indicate that the government will also engage with other trade organizations, including the Confederation of All India Traders ( CAIT ), to allay concerns among small businesses about UPI MDR.