- by Koyel Majhi
- 2025-06-12 19:41:23
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UPI MDR GST: Rules for UPI transactions are changing from October 15. From now on, if an individual transfers more than ₹2,000 to a merchant, a Merchant Discount Rate (MDR) charge of 0.4% will apply. Banks or financial institutions will deduct this amount directly from the shopkeeper or merchant. The government has imposed Goods and Services Tax (GST) on this MDR, sparking a debate on social media. Amidst this discussion, the National Payments Corporation of India (NPCI) has issued a clarification. Will the imposition of GST on the new UPI MDR increase transaction costs for small shopkeepers?
What has the NPCI posted on social media?
The NPCI has issued a clarification on social media stating that the imposition of GST will not financially impact small merchants. Reports suggesting otherwise are incorrect; small merchants will not be adversely affected. Even though GST is levied on the MDR for transactions exceeding ₹2,000, shopkeepers retain the option to file tax returns and claim Input Tax Credit.
GST applies only to the UPI MDR
Starting October 15, an MDR charge of 0.4% will apply to transactions exceeding ₹2,000, subject to a maximum cap of ₹300. However, for specific sectors—such as railways, telecommunications, insurance, and fuel—a flat MDR fee of ₹5 will be charged for transactions above ₹2,000.
MDR is a service charge for processing UPI transactions—a fee that was not previously levied. This charge will be deducted from merchants. It is important to note that the government will levy 18% GST on this fee itself, not on the total transaction amount; the NPCI has clarified this point.
Here is the breakdown of the 18% GST and ITC calculation:
Note that once this rule is implemented, GST will not be levied on the entire transaction amount but only on the MDR (Merchant Discount Rate). For instance, if a shopkeeper makes a sale worth ₹3,000:
MDR fee (0.4%) = ₹12
GST (18% on ₹12) = ₹2.16
Total fee payable by the shopkeeper = ₹14.16
What benefit do shopkeepers get from ITC?
In this scenario, shopkeepers who are registered for GST can claim this ₹2.16. This ensures they do not have to bear the burden of the additional tax out of their own pockets; businesses can offset this amount against their tax liabilities.
