From October 15, 2026, select person-to-merchant UPI payments will attract a 0.4% MDR on transactions above ₹2,000, and an 18% GST will apply to that MDR. GST-registered merchants can claim the GST component as input tax credit where eligible.
GST paid on MDR is claimable as input tax credit (ITC) by GST-registered merchants, subject to usual ITC eligibility rules.
Other fee structures — a flat ₹5 on specified transactions and the ₹300 cap on MDR — will also have 18% GST applied to the fee component where MDR/fees are chargeable.
A government decision makes merchant discount rate (MDR) charges on certain UPI person-to-merchant (P2M) payments subject to 18% GST. The tax applies only to the MDR or fee actually levied on eligible UPI transactions — not to the whole payment amount.
How the charge works — a concrete example If a merchant receives a ₹10,000 UPI payment and MDR of 0.4% is applied, the MDR equals ₹40. An 18% GST on that ₹40 is ₹7.20. The merchant's total transaction cost becomes ₹47.20. The GST is calculated only on the ₹40 fee, not on the ₹10,000 sale value.
A flat fee of ₹5 that applies to specified transactions (for example, certain railway payments) will also attract 18% GST on that fee amount. Where the MDR cap of ₹300 applies, GST will be levied on the applicable MDR amount in line with the rules. These are procedural applications of GST to the fee component.
How this aligns with existing practice Credit and debit card MDRs already attract 18% GST because card processing fees are treated as taxable services. The government says the same tax treatment will now apply to eligible UPI transaction fees.
UPI transaction exemptions continue as before. The change only adds GST to the fee component where an MDR or specified charge is levied.
From October 15, 2026, eligible UPI merchant-facing fees will be taxable at 18%, but GST-registered merchants can generally recover that tax through ITC when their supplies permit recovery. Merchants whose supplies are exempt should account for this as an added cost.
New Delhi : Merchants would have to pay 18 per cent GST on the Merchant Discount Rate (MDR) charges for UPI payments above Rs 2,000, but can claim input tax credit (ITC), thereby easing the overall tax burden, tax experts said on Wednesday. Effective October 15, UPI payments to merchants (P2M) above Rs 2,000 will […]
Government sources said GST will apply to the MDR charged on eligible UPI transactions, but there is no separate GST on UPI payments.
On September 15, the UPI Steering Committee conducted a meeting and settled the UPI MDR at 0.4%, or 40 bps, for transactions above Rs 2,000. W.e.f. October 15, 2026, MDR charges will be applicable. The maximum MDR that can be charged per transaction is capped at Rs 300. At 0.4%, a transaction of Rs 75,000 […] The post
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