Source : INDIA TODAY NEWS
The National Payments Corporation of India (NPCI) has clarified that the introduction of Merchant Discount Rate (MDR) on select UPI transactions will not result in an additional GST burden for the overwhelming majority of merchant payments.
In a post on X, NPCI said MDR applies only to person-to-merchant (P2M) UPI transactions above Rs 2,000. Transactions up to Rs 2,000 will continue to have zero MDR and, consequently, no GST impact arising from MDR.
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NPCI said government data shows that transactions of up to Rs 2,000 account for more than 96% of UPI merchant transaction volume.
As a result, it said, the “overwhelming majority” of UPI merchant payments will continue to attract neither MDR nor GST on MDR.
The clarification comes days after the government and NPCI introduced a new MDR framework for select UPI transactions, under which a 0.4% fee will apply to eligible P2M transactions above Rs 2,000 from October 15.
WHAT HAS CHANGED IN UPI?
UPI has so far operated with zero MDR for these transactions. Under the new framework, select merchant payments above Rs 2,000 will attract an MDR of 0.4%, subject to a maximum charge of Rs 300 per transaction.
The new framework does not mean consumers will start paying a UPI transaction fee. The MDR is a charge within the merchant-payment ecosystem, with the government saying consumers will not be charged for making UPI payments.
Person-to-person UPI transfers also remain free.
The new framework also provides exemptions for smaller merchants. Merchants receiving up to Rs 1 lakh a month through UPI QR transactions are not liable to pay MDR.
Certain categories, including fuel, insurance, telecom and railway transactions, have a separate flat MDR structure rather than the standard 0.4% rate.
WHY DID NPCI ISSUE THE CLARIFICATION?
The new MDR framework led to questions about whether GST on the MDR would add to merchants’ costs.
Tax experts had said the 0.4% MDR would attract 18% GST, although eligible registered merchants could claim input tax credit on that GST.
NPCI’s latest clarification focuses on the fact that the MDR itself does not apply to most UPI merchant transactions by volume.
It said GST paid by a merchant on MDR can be adjusted against the GST payable on the sale of goods, in the same way that input tax is set off against output tax. Therefore, NPCI said merchants do not bear the GST cost on the MDR as an additional unrecoverable expense.
The corporation also pointed to the Rs 1 lakh monthly threshold for small merchants, saying businesses below that level are not liable to pay MDR in the first place.
WHAT DOES THIS MEAN FOR SMALL MERCHANTS?
According to NPCI, small merchants and low-value UPI payments will largely remain outside the new MDR regime.
The key number is 96%, but this needs to be read carefully. NPCI is referring to the share of UPI merchant transaction volume accounted for by payments of up to Rs 2,000. It is not saying that 96% of the total value of UPI merchant payments is below Rs 2,000.
This distinction matters because higher-value transactions make up a much larger share of UPI’s overall transaction value.
The new MDR framework is therefore mainly relevant to higher-value merchant payments, while everyday low-ticket UPI payments remain outside the standard MDR structure.
The change marks a shift in the economics of UPI, which has operated for years as a low-cost digital payment network. The government has said the revised framework is aimed at supporting the sustainability and expansion of the UPI ecosystem.
NPCI’s own latest UPI statistics show that the platform processed 24.51 billion transactions worth about Rs 29.82 lakh crore in August 2026, underlining the scale of the network.
The latest clarification, however, makes clear that the introduction of MDR does not mean every UPI merchant transaction will attract a fee or GST on that fee.
– Ends
SOURCE :- TIMES OF INDIA
