Archive · 23 Sep 2026
NPCI Says GST Won’t Burden Small Merchants Using UPI
NPCI says most UPI payments to shops will not become more expensive.
A processing fee called MDR will apply only when a shop receives more than ₹2,000 in a single UPI payment.
Payments of ₹2,000 or less will still have no MDR.
These smaller payments make up more than 96% of UPI merchant transactions.
Shops receiving up to ₹1 lakh through UPI each month will also be exempt from MDR.
GST will apply only to the processing fee, not to the full amount paid.
For example, a ₹10,000 payment would create a ₹40 fee and ₹7.20 in GST.
Some registered businesses can claim this GST back, but certain unregistered or tax-exempt businesses may not be able to do so.
From October 15, a 0.4% MDR will apply to person-to-merchant UPI payments above ₹2,000, capped at ₹300 per transaction.
Payments up to ₹2,000, which account for more than 96% of UPI merchant transaction volume, will remain free of MDR and related GST.
Merchants receiving up to ₹1 lakh monthly through UPI will be exempt from MDR.
GST is charged at 18% on the MDR service fee, not on the underlying UPI payment; GST-registered merchants can generally claim input tax credit.
Person-to-person UPI transfers remain free, while concerns remain about costs for some unregistered or GST-exempt merchants receiving higher-value payments.
- Who
- The National Payments Corporation of India, the Finance Ministry, UPI merchants, payment-service providers and other payment ecosystem participants.
- What
- NPCI rejected claims that GST on MDR will broadly burden small merchants or make digital payments costlier, while outlining charges for certain higher-value merchant payments.
- When
- The MDR framework is scheduled to take effect on October 15; NPCI issued its clarification on September 22, 2026.
- Where
- Across India’s UPI payment ecosystem.
- Why
- NPCI said most merchant transactions and small merchants are exempt, and that GST-registered merchants can generally offset GST on MDR through input tax credit.
NPCI and Government Position
Merchant and Tax-Cost Concerns
Impact on small merchants
NPCI and Government Position
NPCI says more than 96% of UPI merchant transactions are at or below ₹2,000, and merchants receiving up to ₹1 lakh monthly are exempt, leaving most small merchants unaffected.
Merchant and Tax-Cost Concerns
Reports and officials raised concerns that some merchants, particularly those receiving more than ₹1 lakh monthly but lacking GST registration, could face additional costs.
Whether GST becomes a merchant cost
NPCI and Government Position
GST-registered merchants can generally claim input tax credit on GST paid on MDR and offset it against GST payable on sales.
Merchant and Tax-Cost Concerns
Unregistered businesses and businesses selling exempt goods or services may not be able to use input tax credit and could therefore bear the GST cost.
Effect on digital-payment costs
NPCI and Government Position
NPCI says GST applies only to the processing fee, not the payment amount, while person-to-person UPI transfers remain free; therefore, broad claims that UPI will become costlier are misplaced.
Merchant and Tax-Cost Concerns
Critics and reports argue that MDR and related GST could raise payment-acceptance costs for some merchants and potentially make digital payments more expensive.
- MDR threshold
- MDR applies to person-to-merchant UPI transactions above ₹2,000.
- Standard MDR
- The standard MDR is 0.4%, with a cap of ₹300 for transactions of ₹75,000 and above.
- GST rate
- GST is charged at 18% on the MDR service fee, rather than on the underlying UPI payment.
- Transaction coverage
- Payments up to ₹2,000 represent more than 96% of UPI merchant transaction volume and remain free of MDR.
- Small-merchant exemption
- Merchants receiving up to ₹1 lakh per month through UPI are not liable to pay MDR.
- Concessional sectors
- Transactions above ₹2,000 in railways, telecommunications, insurance, fuel and agricultural inputs attract a flat MDR of ₹5.
- Person-to-person payments
- UPI person-to-person transfers remain free regardless of the amount transferred.
- Illustrative charge
- A ₹10,000 payment at 0.4% MDR produces a ₹40 fee and ₹7.20 in GST; a ₹5 MDR produces 90 paise in GST.
Sources
Over 96 pc UPI transactions, small traders exempt from MDR: NPCI
UPI payments: Small traders exempt from MDR, says NPCI
UPI MDR: NPCI says GST will not burden small merchants or make payments costlier
NPCI says fears over GST on merchant fee for big UPI payments ‘misplaced’
