18% GST on UPI Merchant Discount Rate to Apply on Transactions Above Rs.2,000 From October 15:

A senior Finance Ministry official has clarified that businesses registered under GST will be eligible to claim 18% GST charged on the Merchant Discount Rate (MDR) for UPI transactions exceeding Rs.2,000 as input tax credit. The clarification comes after the National Payments Corporation of India (NPCI) announced a revised MDR framework for UPI transactions made to merchants where the transaction value exceeds Rs.2,000. The revised MDR is scheduled to come into effect from October 15, 2026.

Under the revised framework, most UPI transactions exceeding Rs.2,000 will attract an MDR of 0.4%, subject to a maximum of Rs.300. Certain categories of transactions will attract a flat merchant fee of Rs.5, while capital market transactions will carry an MDR of 0.02%. Accordingly, where a merchant is charged MDR at 0.4% on a UPI transaction of Rs.10,000, the MDR would amount to Rs.40 and GST at 18% on the MDR would be Rs.7.20. Where the applicable MDR is Rs.5, the GST component would be Rs.90 paise.

A potential GST issue may arise for certain unregistered sellers having annual turnover below Rs.40 lakh but receiving more than Rs.1 lakh per month through UPI. Such merchants may not qualify for the exemption from MDR and could consequently face GST on UPI payments exceeding Rs.2,000.

The Finance Ministry official, however, indicated that the number of such merchants is expected to be small and that the issue could be considered by the GST Council at an appropriate stage. The official further stated that approximately 96% of person-to-merchant UPI transactions are below Rs.2,000. For small merchants having turnover below Rs.40 lakh, around 99% of their UPI payments may reportedly be below the Rs.2,000 threshold.

The GST Council is scheduled to meet on October 7, 2026, while the revised MDR framework is set to become effective from October 15, 2026.