GST Council Discusses UPI MDR; Will the Government Offer Relief on Transactions?

The GST Council discussed a proposal to reduce the GST levied on UPI MDR (Merchant Discount Rate) from 18% to 5%. However, no final decision has been reached yet.

The 57th meeting of the GST Council was held today, Thursday, October 8, at Bharat Mandapam in New Delhi. Several key decisions were taken during this meeting. According to sources, the Council deliberated on a proposal to lower the GST applicable to UPI MDR.

Reports indicate that several states have expressed concern regarding the 18% GST levied on UPI MDR. Under the new MDR rules, charges may apply to select merchants for UPI payments exceeding ₹2,000. This prompted the discussion on reducing the GST rate. The crucial question now is: by how much is the 18% GST on MDR proposed to be reduced?

Proposal to Reduce 18% GST

Currently, MDR attracts 18% GST, and there is a proposal to reduce this to 5%. However, it is important to note that no final decision has been made on this matter yet.

How Can Merchants Get Relief?

A significant point is that while GST-registered businesses can claim Input Tax Credit (ITC) on the 18% GST paid on MDR, businesses unable to claim ITC face this as an additional cost. This is the reason behind the proposal to lower the GST from 18% to 5%. If the rate is reduced to 5%, the tax burden on businesses unable to claim ITC could decrease.

What Is the New Framework?

The new UPI framework includes a provision to levy an MDR of 0.4% on UPI payments exceeding ₹2,000. However, this charge will not apply to person-to-person transfers. This means that if you make a payment of more than ₹2,000 to a family member or a friend, no extra charge will be levied. Even if the transaction amount exceeds ₹2,000—or goes up to ₹50,000—there will still be no charge.

On the other hand, if you purchase goods worth more than ₹2,000 at a shop, a charge will apply; however, you will not have to pay it—the merchant will. In other words, the customer does not have to pay any charges whatsoever; they only need to pay the cost of the goods purchased.