18% GST on UPI Merchant Fees May Come Under GST Council Review

GST Council May Review 18% GST on UPI Merchant Fees

The Goods and Services Tax (GST) Council is expected to consider the issue of GST levied on the Merchant Discount Rate (MDR) charged on certain UPI transactions, according to government sources. 

Under the new UPI framework, a 0.4% MDR will apply to specified person-to-merchant UPI transactions above ₹2,000 from October 15, 2026. The MDR itself is not a tax or government levy; the funds are distributed among participants in the payments ecosystem. 

An 18% GST is currently applicable to the MDR charge. GST-registered businesses that are eligible can claim input tax credit, while the impact may be greater for smaller merchants that cannot claim such credit. 

Government sources said the issue could be taken up by the GST Council at an appropriate time. However, reports indicate that it is not currently listed on the agenda for the October 7 GST Council meeting, although the Council could still consider it. 

The government has also clarified that customers will not be charged MDR. Person-to-person UPI payments will remain free, while payments to merchants up to ₹2,000 will also remain free under the new framework. The government says around 96% of merchant UPI transactions will remain unaffected.