UPI MDR above ₹2,000 may attract 18% GST; merchants can claim ITC

Under the statutory framework, these payment settlement services will now attract an 18 per cent GST on the MDR billed to merchants

Merchants would have to pay 18 per cent GST on the Merchant Discount Rate (MDR) charges for UPI payments above ₹ 2,000, but can claim input tax credit (ITC), thereby easing the overall tax burden, tax experts said on Wednesday.

Effective October 15, UPI payments to merchants (P2M) above ₹2,000 will attract a 0.4 per cent merchant discount rate with an overall cap of ₹300. Besides, a flat concessional MDR rate of ₹ 5 would be applicable on specific merchant categories such as railways, telecom services, insurance, and fuel for transaction above ₹ 2,000.

The share of P2M UPI transactions above ₹2,000 has steadily increased from 15.1 per cent in FY23 to 20.1 per cent in the June quarter of FY27, reflecting a sustained shift towards higher-value merchant payments on UPI.

Under the proposed framework, the MDR would be borne by the merchants as a charge for payment settlement services. Since the charge is to be borne by merchants for processing and settling digital payment transactions through the payment network, the 18 per cent GST on the service will be applicable on the merchants.

AMRG Global Managing Partner Rajat Mohan said the introduction of MDR on UPI transactions exceeding ₹ 2,000 brings significant GST implications for India's digital payment ecosystem.