TV
The Ministry of Finance has firmly denied recent media reports suggesting the imposition of Goods and Services Tax (GST) on Unified Payments Interface (UPI) transactions exceeding Rs 2,000. Calling the reports "completely false, misleading, and without any basis," the government clarified that no such proposal is under consideration.
Clarification on GST and UPI Charges
GST is applicable only on specific charges like the Merchant Discount Rate (MDR) for certain digital payment methods. However, the government highlighted that since January 2020, the MDR on UPI-based Person-to-Merchant (P2M) transactions was eliminated. This move, enacted via a Gazette Notification by the Central Board of Direct Taxes (CBDT) on December 30, 2019, means that UPI transactions remain free from GST liability.
What is Merchant Discount Rate (MDR)?
The Merchant Discount Rate (MDR) is a fee that merchants are charged by banks or payment service providers for processing digital transactions. This rate is usually a percentage of the transaction amount. For example, if MDR is 2% and a customer pays ₹1,000 via card, the merchant receives ₹980, while ₹20 goes to the bank or payment service provider. In the case of UPI Person-to-Merchant transactions, this fee has been waived by the government to encourage the adoption of digital payments.
Incentive Scheme Fuels Digital Adoption
To further encourage the adoption of UPI, especially among small merchants, the government has been operating a special incentive scheme since FY 2021-22. This initiative reimburses service providers for transaction costs associated with low-value UPI (P2M) payments, thus promoting innovation and wider usage in the digital payment ecosystem.
Massive Growth in Digital Transactions
The results have been significant. Incentives worth Rs 1,389 crore were disbursed in 2021-22, followed by Rs 2,210 crore in 2022-23 and Rs 631 crore in 2023-24. This has contributed to an explosive growth in digital payments. According to ACI Worldwide, India accounted for 49% of all real-time digital transactions globally in 2023.
UPI transactions have surged more than twelvefold in five years, skyrocketing from Rs 21.3 lakh crore in 2019-20 to over Rs 260 lakh crore by March 2025. Merchant payments alone reached Rs 59.3 lakh crore, indicating robust adoption by businesses and growing consumer confidence in digital payment systems.
Government’s Commitment to Digital India
Reiterating its stance, the Finance Ministry emphasized its unwavering commitment to fostering digital transactions through UPI and reassured citizens that UPI payments, regardless of amount, will remain GST-free.
