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Re:

How GST Applies to UPI Merchant Fees and Payment Services in India

GST on UPI is about service charges, not the amount transferred. See the announced merchant MDR terms from 15 October 2026 and what remains unspecified about GST.
From TheFinanceBase Team4 min to read
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No GST is added to a UPI payment just because its value exceeds ₹2,000. The tax question is about a fee for a payment service, not the money transferred. As of 7 October 2026, a new selective UPI merchant discount rate (MDR) is announced to take effect on 15 October 2026; the official FAQ does not state the GST rate or tax classification for that MDR.

Is GST charged on UPI payments above ₹2,000?

No—not on the payment amount merely because it is above ₹2,000. A Ministry of Finance clarification dated 18 April 2025 rejected that interpretation, distinguishing the UPI transaction value from a service charge such as MDR. The clarification said GST applies to charges relating to payments, not to the transferred amount itself. Ministry of Finance clarification, 18 April 2025.

That release described the then-current UPI person-to-merchant (P2M) MDR as zero, and said there was consequently no GST applicable to those UPI transactions at that time. Treat that as a dated 2025 description, not the latest policy position: a later Ministry FAQ announced a selective MDR framework scheduled to begin on 15 October 2026. Ministry of Finance FAQ, 15 September 2026.

Does GST apply to UPI MDR?

The 2025 Ministry clarification says GST is levied on payment-related charges such as MDR. However, the Ministry’s 15 September 2026 FAQ announcing new UPI MDR terms does not specify the GST rate or tax classification of that MDR. The available official statements therefore support the general distinction between a fee and the payment amount, but do not establish the precise GST treatment or percentage for the newly announced charge. Check the supplier’s invoice and any current official tax direction rather than assuming a rate.

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What UPI merchant fee is scheduled to start on 15 October 2026?

The Department of Financial Services FAQ dated 15 September 2026 says a selective MDR framework is scheduled to take effect on 15 October 2026. It gives these terms for the announced framework:

Transaction or merchant category Announced MDR term
Eligible P2M transaction above ₹2,000 0.4% MDR; capped at ₹300 for transactions of ₹75,000 and above.
Small merchant category (P2PM) Zero MDR for merchants receiving up to ₹1 lakh per month through UPI QR directly into their accounts, subject to account categorisation.
Specified categories, including railways, telecom, insurance and fuel Flat ₹5 MDR on transactions above ₹2,000.
Credit-linked UPI, including RuPay credit cards linked to UPI or presanctioned credit lines Handled under separate credit-product rules rather than the direct account-to-account UPI MDR framework.

The FAQ’s MDR examples are ₹12 on a ₹3,000 transaction, ₹200 on ₹50,000 and ₹300 on ₹1,00,000. These are MDR figures only; they do not include a GST calculation. The FAQ describes the P2PM zero-MDR category using monthly UPI QR receipts and account categorisation, and says eligibility depends on account categorisation rather than GST registration. That is not a blanket zero-fee rule for every small business. Department of Financial Services FAQ, 15 September 2026.

Who pays UPI MDR, and can a shop pass it to customers?

The Ministry FAQ says consumers will not be charged and merchants onboarded under the announced framework cannot pass MDR on to buyers. Its stated policy is that the fee is a merchant-side acceptance cost, not a surcharge on the customer’s UPI payment. This describes the framework scheduled for 15 October 2026, not a fee already in force as of 7 October 2026. Ministry of Finance FAQ, 15 September 2026.

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Are payment gateway charges different from UPI MDR?

They can be. MDR is a merchant discount charge associated with accepting a payment; a payment gateway supplies technology to route and facilitate an online transaction. A payment aggregator, by contrast, receives customer funds, pools them and transfers them to merchants. A merchant’s UPI MDR line and a separately contracted gateway or processing fee should not be treated as the same service without checking the contract and invoice.

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CBIC Circular 55 clarifies a limited GST exemption under entry 34 of Notification 12/2017-CTR for RBI-regulated payment aggregators performing qualifying settlement of up to ₹2,000 in a single transaction through credit, debit, charge or other payment-card services. It says the exemption is limited to settlement involving handling money and does not cover payment gateway services. Because the circular addresses payment-card services, it is not a blanket exemption for all payment services and does not itself settle GST treatment for UPI. CBIC Circular 55.

How to check a merchant’s payment-service bill

  1. Identify the payment rail and funding source. Separate direct account-to-account UPI from credit-linked UPI or a payment-card transaction.
  2. Check the merchant category and effective date. For the announced UPI framework, the FAQ gives an effective date of 15 October 2026 and describes different terms for eligible P2M transactions, P2PM merchants, specified industries and credit-linked products.
  3. Separate each service and fee. Look for distinct lines for MDR, settlement, gateway technology or another contracted platform service. A zero-MDR transaction does not establish that every provider’s separate service is free or GST-exempt.
  4. Read the tax line on the supplier invoice. The 2026 FAQ does not state the GST rate or classification for the new MDR. If the invoice does not make the treatment clear, ask the supplier to identify the service and basis for the tax shown.

A Lok Sabha answer dated 18 August 2025 said there was then no proposal to impose transaction charges. It predates the September 2026 announcement, so it should not be used to describe the later framework. Lok Sabha answer, 18 August 2025.

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