UPI MDR: NPCI says 96% of merchant transactions remain unaffected by GST
The National Payments Corporation of India (NPCI) has said the introduction of Goods and Services Tax (GST) on Merchant Discount Rate (MDR) for certain Unified Payments Interface (UPI) transactions will not increase costs for most small merchants, with more than 96 percent of UPI merchant transactions by volume remaining outside the MDR framework.
In a post on X on Tuesday, NPCI said UPI person-to-merchant (P2M) transactions of up to Rs 2,000 will continue to attract zero MDR and, therefore, have no GST impact. It also said merchants with monthly UPI receipts of up to Rs 1 lakh are not liable to pay MDR.
The clarification comes amid concerns that the levy of GST on MDR could make digital payments more expensive for merchants.
NPCI said MDR applies only to P2M transactions above Rs 2,000, adding that government data shows this threshold covers more than 96 percent of UPI merchant transaction volume. As a result, the vast majority of UPI payments will not attract MDR and, consequently, no GST on MDR.
Input tax credit will offset the cost
For the smaller share of merchants who pay MDR, NPCI said the GST charged on it will not translate into an additional cost because it can be claimed as an input tax credit.
"GST paid on MDR by a merchant will be adjusted against the GST payable on the sale of goods, in the same manner that input taxes are set off against output tax liability," the payments body said.
Consequently, NPCI said such merchants will not ultimately bear the GST burden on the MDR amount they pay.
Merchants exempt from MDR under the Rs 1 lakh monthly threshold will also have no GST liability on MDR, NPCI said.
The payments corporation said concerns about an additional burden on merchants were misplaced, pointing out that the vast majority of UPI transactions, as well as small merchants, remain unaffected by the levy.
The clarification comes weeks after NPCI notified a 0.4 percent MDR on P2M UPI transactions above Rs 2,000, effective October 15, capped at Rs 300 per transaction, according to an NPCI circular.
