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Former RBI Governor C. Rangarajan reportedly urged the GST Council to clarify that GST should not apply to a new UPI merchant discount rate (MDR). His comments were a policy recommendation, not a GST Council decision. As of 7 October 2026, a Ministry of Finance framework for selected merchant transactions had been announced but was scheduled to start on 15 October—not yet in force. The issue is GST on a merchant’s MDR payment, not a new GST on every consumer UPI payment.
What Rangarajan said about GST and UPI MDR
At the 5 October 2026 Chennai launch of Cashless Nation: How UPI Changed Everything, Rangarajan reportedly said that imposing an MDR would bring GST into the picture because the charge is a cost paid. He urged the GST Council to say clearly that GST should not be imposed on UPI MDR. The account of his remarks was published by Webnewswire on 6 October; the quoted wording is therefore attributable to that report, not an independently verified transcript. Webnewswire’s report
He also acknowledged the underlying trade-off: UPI infrastructure has operating costs, and whether merchants should be charged is a separate question. His position does not establish the applicable tax treatment or change the announced framework. No GST Council decision or detailed GST notification on the new framework is established by the cited material.
Will GST apply to UPI payments above ₹2,000?
Not simply because a UPI payment exceeds ₹2,000. The Ministry’s September 2026 framework concerns MDR on specified merchant transactions (P2M), not peer-to-peer transfers (P2P). India Today reported that GST would apply to MDR payments and that eligible businesses could claim input tax credit. That is a reported account of the tax treatment, not a personalized tax determination or a detailed primary tax ruling. India Today’s report on MDR, GST and consumer pricing
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The Ministry’s release says customers are not to pay MDR. That describes the announced arrangement; it does not establish whether merchants might change prices indirectly. Ministry of Finance framework announcement, 15 September 2026
What the Ministry’s announced MDR framework covers
The Ministry of Finance announced the framework on 15 September 2026. Its release describes the following categories. The planned start date reported by news outlets was 15 October 2026, after the 7 October 2026 status date used here. India Today’s overview of the announced framework
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| Transaction or merchant category | Announced MDR treatment |
|---|---|
| P2P transfers | Free irrespective of amount. |
| P2M merchant transactions up to ₹2,000 | Zero MDR. |
| Specified P2M transactions above ₹2,000 | 0.4% MDR, capped at ₹300 for transactions of ₹75,000 or more. |
| Railways, telecom, insurance, fuel and agricultural inputs above ₹2,000 | Flat ₹5 MDR. |
| Mutual funds, securities, stockbrokers and dealers | 0.02% MDR, capped at ₹300. |
| Small merchants receiving up to ₹1 lakh monthly through UPI QR codes under P2PM | Zero MDR on all transactions. |
The thresholds and sector categories above are from the Ministry’s release; a single transaction over ₹2,000 does not, by itself, establish that a small merchant is liable for MDR. The Ministry said approximately 96% of merchant transactions would remain outside MDR and that P2P transactions—which it said account for about 70% of total transaction value—remain outside the framework. Those are Ministry estimates and descriptions, not independently audited findings in the cited material. The release also describes a contribution equivalent to 5% of MDR collections for a dedicated small-merchant fund. Ministry of Finance, 15 September 2026
Why the April 2025 statement does not settle the 2026 question
On 18 April 2025, the Ministry of Finance said no MDR was then charged on UPI P2M transactions and, consequently, no GST was applicable to those transactions at that time. That statement described the position in April 2025; it should not be read as a description of the later framework announced in September 2026. Ministry of Finance statement, 18 April 2025
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The distinction matters: MDR is a merchant-side charge, while GST on that charge is a separate tax question. The 2025 statement addressed the absence of MDR then. Rangarajan’s 2026 remarks address whether GST should apply if MDR is charged under the newly announced arrangement.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What merchants and UPI users should take from the announcement
- For personal transfers: the announced framework leaves P2P UPI free regardless of amount.
- For merchant payments: the MDR treatment depends on transaction amount, sector and, for eligible small merchants, monthly UPI QR receipts under P2PM.
- For GST: the available reporting says GST applies to MDR payments, not to every UPI payment as such. Businesses should confirm their own treatment with a qualified tax adviser or authoritative tax guidance.
- For consumers: the Ministry says merchants should not pass MDR on to customers. This is the stated policy, not evidence about how prices will behave in practice.
The Finance Ministry’s earlier figures help explain why the issue is consequential, but they do not predict the effect of the new framework: its April 2025 release reported UPI transaction value of ₹260.56 lakh crore by March 2025 and cited ACI Worldwide’s estimate that India accounted for 49% of global real-time transactions in 2023. Ministry of Finance, 18 April 2025
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