UPI MDR Charges To Attract 18% GST; Merchants Can Claim Input Tax Credit On Eligible Transactions

The Merchant Discount Rate (MDR) introduced on select UPI merchant transactions will be subject to 18% GST, a Central Board of Indirect Taxes and Customs (CBIC) official was cited as saying as per a report by NDTV Profit.

The tax will be calculated only on the MDR amount and not on the overall value of the UPI payment. Under the new framework, person-to-merchant UPI payments above Rs 2,000 will attract an MDR of 0.4% from October 15, subject to the prescribed transaction limit.

Merchants eligible under GST rules will be able to claim input tax credit (ITC) on the GST paid on MDR.

GST calculation on UPI MDR

For example, on a UPI payment of Rs 10,000, the MDR would amount to Rs 40. The 18% GST applicable on the MDR would add another Rs 7.20, taking the total MDR-related cost to Rs 47.20. However, GST-registered merchants meeting the required conditions can claim the Rs 7.20 amount as input tax credit.

The final impact of the tax will depend on whether merchants can utilise the credit. Businesses dealing in exempt goods or services may not be eligible to claim the full credit and could bear the additional GST cost.

New UPI charges framework

The revised MDR system will apply from October 15, while person-to-person UPI transfers will continue to remain free. The MDR will be paid by merchants and not consumers, with the charge capped at Rs 300 for transactions of Rs 75,000 or above.

Certain categories will have separate rates. Payments for services such as railways, telecom, fuel and insurance will attract a flat Rs 5 charge for transactions above Rs 2,000.

Capital market transactions, including mutual fund and stockbroking payments, will carry a lower MDR of 0.02%, also capped at Rs 300. Small merchants receiving up to Rs 1 lakh monthly through UPI QR codes will remain exempt.

According to the report, officials said the exemption would keep around 96% of merchant transactions unaffected. Additionally, 5% of MDR collections will be allocated to a fund aimed at expanding UPI acceptance among small merchants.