New Delhi [India], September 22 : The National Payments Corporation of India clarified that allegations regarding Goods and Services Tax (GST) on Unified Payments Interface (UPI) Merchant Discount Rate (MDR) burdening small merchants and making digital payments costly are incorrect.
Addressing concerns circulating in the public domain, NPCI stated that retail digital transactions remain insulated from the levy.
In a statement posted on social media platform X, NPCI said, “Certain media reports have alleged that GST on UPI Merchant Discount Rate (MDR) will burden small merchants and make digital payments costly. This is incorrect.”
The NPCI noted that the MDR framework applies strictly to higher-value commercial transfers, leaving everyday digital commerce untouched.
“MDR applies only to P2M transactions above Rs 2,000. Transactions up to Rs 2,000 continue to have zero MDR and therefore zero GST impact,” NPCI said.
“Government data indicates that transactions of up to Rs 2,000 constitute more than 96% of UPI merchant transaction volume. As a result, the overwhelming majority of UPI payments will not attract MDR and hence no GST on MDR,” NPCI added.
Addressing the tax mechanism, the payments authority explained that any GST remitted on account of MDR will not turn into an out-of-pocket expense for businesses registered under the tax net.
“Further, GST paid on MDR by a merchant will be adjusted against the GST payable on the sale of goods, in the same manner that input taxes are set off against output tax liability. Consequently, merchants do not bear the cost of GST on the MDR amount paid by them,” the NPCI stated.
Small business owners and micro-enterprises with low operational volumes also stay outside the scope of the rule.
“Merchants with monthly UPI receipts of up to Rs 1 lakh are not liable to pay MDR and therefore do not even have the issue of GST on MDR,” NPCI noted.
Dismissing reports of an increased operational cost across the digital payments landscape, the payments body reiterated that common commercial payments will face no disruption.
“Hence, apprehensions that GST on MDR will impose an additional burden on merchants are misplaced. The overwhelming majority of UPI transactions and small merchants remain unaffected,” NPCI affirmed.
The clarification follows the introduction of a new framework by NPCI on September 15. It introduced a new Merchant Discount Rate (MDR) framework, under which UPI merchant transactions above Rs 2,000 will attract an MDR of 0.4 per cent, while consumers will continue to transact free of cost using UPI.
The government has said around 96 per cent of P2M transactions will remain unaffected, while MDR will be distributed among payment ecosystem participants, including banks and payment application providers.
Under the new framework, an MDR of 0.4 per cent will apply to Person-to-Merchant (P2M) UPI transactions above Rs 2,000, with the MDR capped at Rs 300 per transaction.