18% GST on UPI Merchant Fee, Not on Transaction Value
What Happened
Starting October 15, merchant UPI (P2M) payments above ₹2,000 will attract a 0.4% Merchant Discount Rate (MDR), capped at ₹300 per transaction. An 18% GST will apply only on the MDR fee, not on the transaction amount itself. GST-registered merchants can claim Input Tax Credit (ITC) on the GST paid, reducing the effective tax burden. Certain sectors such as railways, telecom, insurance and fuel will have a concessional MDR of ₹5 per transaction above ₹2,000.
Key Takeaways
Consumers will not pay GST on UPI transactions. The levy applies only to the MDR charged to merchants. For GST-registered businesses, the impact is expected to be limited due to ITC benefits, while small vendors and transactions below ₹2,000 remain exempt. Experts estimate the move could generate ₹3,500-₹4,000 crore in annual GST revenue while supporting the digital payments ecosystem.