NPCI, the body overseeing UPI, issues its first statement on charges and GST
The NPCI has clarified its stance regarding claims circulating on social media that an 18% GST would be levied on the Merchant Discount Rate (MDR). The NPCI stated that since there is no MDR on transactions up to ₹2,000, GST is not applicable to them either.
The government and NPCI recently announced that, starting October 15, 2026, an MDR of 0.4% would be charged on 'Person-to-Merchant' (P2M) UPI payments exceeding ₹2,000. However, this fee is to be paid by shopkeepers (merchants) to banks and service providers; it is not charged to customers. Following this announcement, claims emerged that an 18% GST would be levied on this MDR. The NPCI has now issued a clarification regarding this.
What did the NPCI say?
In a post on its official X (formerly Twitter) handle today, the NPCI (National Payments Corporation of India) stated that the claim is incorrect. MDR applies only to UPI transactions exceeding ₹2,000. Since no MDR is charged on transactions up to ₹2,000, GST does not apply to them. Furthermore, merchants can adjust the GST paid on the MDR against the GST liability on their sales. This essentially means that the merchant does not have to pay any additional GST out of their own pocket; instead, the amount is ultimately recovered by the merchant from the government.
Certain media reports have alleged that GST on UPI Merchant Discount Rate (MDR) will burden small merchants and make digital payments costly. This is incorrect.
— NPCI (@NPCI_NPCI) September 22, 2026
MDR applies only to P2M transactions above ₹2,000. Transactions up to ₹2,000 continue to have zero MDR and therefore…
GST applies only to the MDR, not the entire transaction amount
A major misconception was the belief that the 18% GST would apply to the entire transaction amount, which is not the case. The government clarified that for a transaction of ₹10,000, the 18% GST would not apply to the full ₹10,000, but rather to the 0.4% MDR charged on it—which amounts to ₹40. More than 96% of UPI transactions in the country are for amounts less than ₹2,000, on which the MDR is zero. Additionally, small shopkeepers who earn up to ₹1 lakh per month via QR codes are completely exempt from this ambit; this means they will not be required to pay any MDR.
Furthermore, businesses with an annual turnover of less than ₹40 lakh are not registered under GST and, consequently, cannot claim Input Tax Credit (ITC) to recover costs. Therefore, during the GST Council meeting scheduled for October 7, 2026, the government may consider ways to provide complete relief from this tax to such unregistered small shopkeepers.
