UPI MDR GST will not create an additional burden for small merchants, according to the National Payments Corporation of India (NPCI), which said most UPI transactions will remain outside the Merchant Discount Rate (MDR) framework.

Key Highlights

• NPCI says GST on UPI MDR will not burden small merchants as most transactions remain outside the MDR framework.

• Transactions amounting to Rs 2,000 and below zero MDR will continue, small merchants won't be affected by GST concerns significantly.

UPI MDR Applies Only to Transactions Above Rs 2,000

NPCI also said that MDR shall only apply to transactions where person-to-merchant (P2M) transactions amount to more than Rs 2,000. Any transaction under Rs 20,000 will still have a zero MDR charge and hence no impact GST on MDR.

Government data, quoted by NPCI, shows that the number of transactions on UPI that are worth less than Rs 2,000 make up over 96% of the volume of transactions on merchant platforms.

This means the overwhelming majority of UPI payments will not attract MDR or GST on MDR.

How GST on UPI MDR Works for Merchants

NPCI also explained that GST paid by merchants on MDR can be adjusted against the GST payable on their sales. The mechanism works in the same way as input tax is set off against output tax liability.

As a result, NPCI said merchants do not bear the cost of GST on the MDR amount paid by them. The payments body maintained that concerns over GST on MDR creating an additional cost for merchants are misplaced.

Also Read: UPI Charges Alert: Will Payments Above Rs 2,000 Now Cost You?

Small Merchants Remain Largely Unaffected

NPCI further stated that merchants receiving up to Rs 1 lakh through UPI each month are not liable to pay MDR. Therefore, such merchants also do not face the issue of GST being charged on MDR.

The clarification comes amid concerns that the introduction of MDR on UPI on certain higher-value merchant transactions could increase the cost of digital payments for small businesses. NPCI said the overwhelming majority of UPI transactions and small merchants remain unaffected.

What Does the UPI MDR GST Clarification Mean?

The NPCI clarification indicates that GST on MDR is relevant only where MDR itself applies. Since transactions up to Rs 2,000 continue to have zero MDR and merchants with monthly UPI receipts up to Rs 1 lakh are not liable to pay MDR, a large section of small merchants remains outside the framework