The government and NPCI recently announced a new rule for certain UPI payments. From 15 October 2026, person-to-merchant UPI transactions above ₹2,000 will attract a 0.4% MDR. However, merchants will pay this charge to banks and service providers, not customers. After this announcement, claims about 18% GST on MDR started circulating online. Therefore, NPCI has now clarified the matter.
NPCI Clarifies GST Claims On UPI Payments
NPCI shared an official post on X and called the GST claim incorrect. According to NPCI, MDR applies only to UPI transactions above ₹2,000. Since payments up to ₹2,000 have no MDR, GST does not apply there.
Moreover, merchants can adjust GST paid on MDR against their sales GST. Therefore, merchants will not pay separate GST from their own pockets. Instead, they can claim adjustment through the existing GST system.
GST Will Apply Only On MDR Amount
The biggest confusion was about GST applying to the complete transaction value. However, that understanding is incorrect. The GST applies only to the MDR amount, not the entire payment.
For example, a ₹10,000 transaction will not attract 18% GST on the full amount. Instead, GST will apply only on the 0.4% MDR, which equals ₹40.
Additionally, more than 96% of UPI transactions in India remain below ₹2,000. These payments continue without MDR charges. Small merchants earning up to ₹1 lakh monthly through QR codes also remain outside this charge.
Small Merchants May Get Further Relief
Businesses with annual turnover below ₹40 lakh generally do not register under GST. Therefore, they cannot claim input tax credit (ITC) for GST paid on MDR.
Because of this issue, the government may discuss relief options during the GST Council meeting scheduled for 7 October 2026. The discussion may focus on providing relief to unregistered small merchants.
