UPI MDR: No extension of October 15 implementation date; GST Council may review 18% GST
The government does not plan to extend the October 15 implementation date for Merchant Discount Rate (MDR) on select Unified Payments Interface (UPI) transactions, government sources said. The GST Council may, however, review the 18 percent Goods and Services Tax (GST) levied on MDR.
The issue of GST on MDR is not currently on the agenda for the GST Council's October 7 meeting, but could be taken up by the Council nevertheless, the sources said.
The developments come amid concerns over the impact of MDR on merchants and the overall cost of UPI transactions.
The government has defended the introduction of MDR, saying the charges do not fully cover the cost of sustaining the UPI ecosystem.
“The MDR in UPI does not 100 percent make up for the costs of sustaining it,” government sources said.
The sources also said the MDR rates have been decided by the Indian Banks' Association (IBA) in consultation with stakeholders.
Under the new framework, a 0.4 percent MDR has been introduced on specified UPI merchant transactions above Rs 2,000, subject to a cap of Rs 300 per transaction.
The government has maintained that consumers will not be charged for UPI payments and that person-to-person transactions will continue to remain free.
The introduction of MDR marks a shift for UPI, which has largely operated under a zero-MDR regime for merchant transactions. The government has argued that a sustainable revenue mechanism is needed to support the payments ecosystem as transaction volumes continue to expand.
GST Council may discuss MDR
Government sources confirmed that the GST levy on the MDR fee on UPI transactions is a subject of the GST Council. "We hope the Council will take a favourable view on it," a senior finance ministry official said.
"The government is inclined to favour it whenever the GST Council takes it up," the official added.
Moneycontrol had reported on September 21 that the GST Council on October 7 is likely to discuss ways to provide relief from the indirect tax levied on the merchant discount rate (MDR) charged on some high-value UPI transactions, particularly for small merchants who are not registered with GST authorities.
Under GST rules, businesses with annual turnover less than Rs 40 lakh for goods or Rs 20 lakh for services generally do not have to register. As unregistered businesses, they cannot claim input tax credit (ITC). So when GST is charged on MDR on UPI transactions, small businesses cannot offset the additional tax cost.
Earlier this month a senior government official had said that companies can claim back the GST paid on MDR through the ITC route, provided they are registered with the tax authorities and supply goods and services that are not exempt from GST.
“Many small merchants are not registered with the authorities. They may be ineligible for the ITC benefit,” a government official had told Moneycontrol earlier. The person added that the Council may discuss a mechanism through which such businesses are not “drastically affected”.
