UPI MDR GST: NPCI Clarifies GST on UPI MDR Will Not Burden Small Merchants

UPI MDR GST: The National Payments Corporation of India (NPCI) has clarified the rules around GST on UPI Merchant Discount Rate (MDR), saying small businesses will not be affected in the way suggested in some reports.

Under the new system, MDR will apply only to certain Person to Merchant (P2M) UPI payments above ₹2,000. Transactions of ₹2,000 or less will remain outside the MDR framework. As a result, there will be no GST on MDR for those payments.

NPCI said this covers most UPI payments made to merchants. More than 96 percent of merchant transactions are valued at ₹2,000 or below, according to the figures cited by the organisation. This means the majority of payments at shops and other businesses will not attract MDR.

There is also a separate provision for small merchants. Businesses receiving up to ₹1 lakh a month through their UPI QR accounts will not be charged MDR. This exemption applies even if an individual payment crosses ₹2,000.

The revised MDR system is expected to come into effect from October 15. For transactions that fall under the new rules, the MDR will be 0.4 percent, subject to the applicable cap. MDR is a service charge connected with processing the payment and is not itself a government tax.

GST, where applicable, will be calculated on the MDR amount rather than on the full payment made by the customer. So, a merchant does not pay GST on the entire value of a UPI transaction simply because the payment crosses ₹2,000.

GST registered businesses may also be able to claim input tax credit on the GST paid on MDR, depending on the applicable tax rules. The credit can be adjusted against eligible GST liability from sales.

NPCI also clarified that the changes do not mean ordinary UPI users will start paying charges for regular transfers. Person to Person payments remain outside the MDR system. Merchant payments up to ₹2,000 will also continue without MDR.

The clarification comes after concerns were raised about the possible impact of MDR and GST on small businesses. NPCI said those concerns do not apply uniformly to all merchants. The actual impact will depend on the value and nature of the transaction and whether the merchant qualifies for the small merchant exemption.

With the new rules set to begin soon, NPCI has asked users and businesses to look at the specific conditions instead of assuming that GST will be added to every UPI payment.