UPI Merchant Transactions Largely Unaffected by GST on MDR, Confirms NPCI

The National Payments Corporation of India (NPCI) has confirmed that 96% of UPI (Unified Payments Interface) merchant transactions remain unaffected by Goods and Services Tax (GST) on the Merchant Discount Rate (MDR), as pew news reports. This update addresses concerns about digital payment costs for small merchants. 

MDR and GST Impact on UPI Transactions 

NPCI clarified that UPI transactions involve MDR only when transaction values exceed ₹2,000, affecting a small percentage of payments, as per news reports.  

Transactions up to ₹2,000 attract zero MDR and therefore, remain outside the ambit of GST. The decision ensures that merchants with a monthly UPI receipt up to ₹1 lakh continue to have no MDR liability. 

Myths Addressed 

Previously, media speculations suggested GST on UPI MDR might increase digital payment costs for small merchants. NPCI's statement refutes these claims, emphasizing that only person-to-merchant (P2M) transactions over ₹2,000 incur MDR. As per government data, this threshold covers a minimal portion of UPI transaction volumes. 

Input Tax Credit Offsets MDR GST 

For merchants incurring MDR, GST paid on it can be offset through input tax credit, alleviating potential cost concerns. Specifically, the GST paid on MDR can be adjusted against the GST due on goods sales. Thus, merchants will not bear an additional GST burden. 

MDR Changes Effective ffrom October 15, 2026 

NPCI announced a 0.4% MDR on P2M UPI transactions exceeding ₹2,000, effective from October 15, 2026. This MDR is capped at ₹300 per transaction. As such, concerns about an impact on small merchants are largely unfounded, as confirmed by NPCI's data showing most transactions lie outside this scope. 

Read More: UPI Transactions Up to ₹2,000 to Remain Free Under New MDR Pricing Framework! 

Conclusion 

NPCI's clarification that 96% of UPI merchant transactions remain unaffected by GST on MDR is pivotal in addressing potential cost concerns. The MDR applies only to transactions above ₹2,000, while the input tax credit ensures that additional costs are offset for merchants paying MDR. The vast majority of UPI transactions are unaffected by GST implications, as corroborated by statistical data. 

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