A decision on whether Goods and Services Tax (GST) should apply to the Merchant Discount Rate (MDR) charged on certain UPI transactions is expected from the GST Council. According to sources cited by PTI, the Council will decide whether GST should be levied on the MDR applicable to UPI payments.
Sources said GST applies to services, while decisions on such matters are taken by the GST Council, which is headed by the Union Finance Minister and includes finance ministers from the states.
The sources expressed hope that the Council would consider consumers’ interests while deciding on the matter. They said an 18% GST on the fees paid by merchants for UPI transaction services could be considered, similar to the treatment already applied to insurance premiums.
GST Council Meeting Scheduled for October 7
The next GST Council meeting is scheduled to take place on October 7. According to sources, the meeting is expected to focus mainly on process reforms and simplification.
Tax rate changes, however, are not expected to be part of the meeting’s agenda.
The discussion around GST comes ahead of the implementation of the new MDR structure for certain UPI merchant payments.
UPI MDR to Take Effect From October 15
The government has introduced a 0.4% MDR on UPI payments made to merchants when the transaction value exceeds ₹2,000. The new charge will come into effect from October 15.
For transactions worth ₹75,000 or more, the MDR will be capped at ₹300. Person-to-person transfers and smaller payments will not come under this MDR structure.
Under the new system, merchants will pay the MDR for payment settlement services. Since the charge relates to processing and settling digital transactions through payment networks, it would be subject to GST treatment, according to the explanation provided by the sources.
If an 18% GST is applied to the MDR, businesses paying the tax could claim input tax credit (ITC) on the GST paid, subject to applicable rules. Tax professionals cited in the report said this could reduce the overall tax impact for eligible businesses.
Government Will Not Receive MDR Revenue
Official sources have clarified that the government will not receive revenue from the MDR collected on UPI transactions. The amount collected will instead be distributed among various participants involved in the UPI payment ecosystem, including banks.
Importantly, the MDR will not be charged directly to customers. Banks are expected to conduct awareness campaigns to address concerns and prevent confusion regarding the new UPI charges.
The government is also expected to engage with trade organisations, including the Confederation of All India Traders (CAIT), to address concerns among small businesses regarding the UPI MDR framework.
Disclaimer
The information in this article is based on details and source statements available in the provided material. GST rules, UPI charges and MDR-related regulations may be subject to official decisions or changes. Readers should refer to official notifications and the latest guidance from relevant authorities before making business or financial decisions.