Following the Government’s decision to introduce the Merchant Discount Rate (MDR) of 0.4 percent on Person-to-Merchant (P2M) transactions above ₹2,000, concerns rose regarding burden on small merchants. However, National Payments Corporation of India (NPCI) on Tuesday refuted reports in some sections of the media that have alleged that GST on UPI Merchant Discount Rate (MDR) will make digital payments costly.
This is incorrect as MDR applies only to P2M transactions above Rs 2,000, said NPCI in a statement. Transactions of Rs 2000 or lower would attract zero MDR. Also, transactions covered under the zero-MDR framework for small merchants, will remain free.
As per the Government’s data over 96 percent of total transactions to merchant are up to Rs 2,000 which brings a majority of the section outside the scope of MDR. Hence, there will be no GST.
Merchants with monthly UPI receipts of up to Rs 1 lakh are not liable to pay MDR and therefore do not even have the issue of GST on MDR. Hence, apprehensions that GST on MDR will impose an additional burden on merchants are misplaced. The overwhelming majority of UPI transactions and small merchants remain unaffected, the statement pointed out.
The statement further explains that the GST a merchants pays on MDR will be adjusted against the GST which is applicable on the sale of goods. It is similar to how input taxes are set off against output tax liability. Consequently, merchants do not bear the cost of GST on the MDR amount paid by them, the statement added.
The revised framework which will come into effect from October 15, 2026, would have no impact on consumers. Person-to-Person (P2P) transactions will continue to remain free, while P2M transactions of up to Rs 2,000 will also remain outside the MDR framework. This means consumers will continue to use UPI without paying any transaction charges irrespective of the amount transferred, as per an explainer issued by the Finance Ministry earlier.
Earlier, the Finance Ministry clarified that MDR is neither a tax nor a charge collected by the Government or NPCI. It is distributed among payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI ecosystem.
A nominal MDR of 0.4 per cent will apply only to P2M transactions above Rs 2,000. The MDR will be shared among payment ecosystem participants, including banks, payment service providers and UPI application providers. For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction.
Transactions above Rs 2,000 in essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of Rs 5 per transaction. The flat charge will provide cost certainty for critical public services and businesses operating on narrow margins.
(With inputs from IANS)
