UPI payments: GST on MDR applicable, but customers should not bear merchant charges, government sources say

Customers will not incur merchant payment charges as the government ensures businesses don't pass these costs on. Officials are monitoring the implementation closely.

Customers should not bear merchant payment charges, government sources told news agency ANI. Officials will closely monitor implementation to ensure businesses do not pass these costs on.

The government has already discussed the issue with payment aggregators, ANI added. Efforts will also be made to address gaps in enforcement.

On taxation, government sources said, “There is no separate GST on MDR.” However, they clarified that GST would apply to MDR charges on UPI payments. Businesses can claim input tax credit against the GST paid.

“GST will currently be levied on MDR charges applicable to UPI transactions. However, businesses will be able to claim input tax credit against the GST paid. Businesses have the option to set off the GST liability," the source added.

According to the Finance Ministry, personal money transfers remain free, whatever the amount. Customers paying businesses will not bear the merchant discount rate (MDR).

A 0.4% MDR will apply to specified merchant payments above ₹2,000, capped at ₹300. Payments of ₹2,000 or less, along with eligible small merchants, remain exempt.

Selected essential sectors will attract a fixed ₹5 fee for payments above ₹2,000. The ministry says roughly 96% of merchant transactions will see no change.

Traders fear higher business costs while customers worry that shops could increase prices due to the new UPI rule. Some trader groups have discussed encouraging cash payments to avoid fees on larger purchases.

Opposition parties have called the changes “anti-people” and harmful to savings. Congress has called it a “Modi Tax” on common people. Rahul Gandhi has argued that, while large commercial transactions account for just 5% of overall UPI volume, they account for roughly 65% of UPI's total transaction value.

A Supreme Court petition has also challenged the notification introducing the charges.

The government, however, has defended the move and ruled out withdrawing it. Officials say the fees will help maintain the digital payments network after six years.

Smaller vendors receiving less than ₹1 lakh per month via QR codes remain exempt. Larger businesses worry about pressure on their profits and rising operating expenses.

The government says ordinary customers and 96% of merchant transactions remain unaffected. Despite these assurances, concerns persist about businesses indirectly passing costs on to buyers.

Sounak Mukhopadhyay covers trending news, sports and entertainment for LiveMint. His reporting focuses on fast-moving stories, box office performance, digital culture and major cricket developments. He combines real-time updates with clear context for everyday readers. Sounak brings newsroom experience across breaking news, explainers and long-form features. He has a strong emphasis on accuracy, verification and responsible storytelling. His work tracks audience behaviour, celebrity influence and the business of sport and cinema. He helps readers understand why a story matters beyond the headline. Sounak has contributed to widely read digital publications. He continues to build a body of journalism shaped by consistency, speed and editorial clarity. He is particularly interested in the intersection of media, popular culture and public conversation in contemporary India. At LiveMint, he writes daily coverage as well as analytical pieces that interpret numbers, trends and cultural moments in accessible language. His approach prioritises factual depth, balanced framing and reader trust. The reporting aligns with modern newsroom standards of transparency and credibility. Outside daily reporting, he explores storytelling across formats including podcasts, filmmaking and narrative non-fiction. Through his journalism, Sounak aims to document the rhythms of modern entertainment and sports while maintaining rigorous editorial integrity. Sounak continues to develop audience-focused journalism that connects speed with substance in a rapidly-changing information environment. His work seeks clarity, trust and lasting public value in every story he reports.