GST Council may consider GST on proposed UPI MDR ahead of October 15 rollout
The GST Council is expected to examine the tax treatment of a proposed 0.4% merchant discount rate on eligible UPI payments above Rs 2,000. If implemented from October 15, the fee would raise payment-acceptance costs for merchants and reshape settlement economics across banks, acquirers and UPI apps.
What happened
The GST Council may consider GST treatment of merchant discount rates on UPI payments. A 0.4% MDR on merchant UPI transactions above Rs 2,000 is due from
Key facts
- 18% GST on MDR charges
- 0.4% MDR on eligible UPI payments above Rs 2,000
- MDR effective October 15
- 40% to issuing bank
- 30% to merchant acquirer
- 20% to UPI app
- 10% to payer PSP bank
Why this matters
Evaluate partnerships or acquisitions in merchant acquiring, payment orchestration and cost-optimization tools, where a paid UPI acceptance model could increase demand for settlement efficiency and fee-management capabilities.
What to watch
- GST Council agenda, meeting outcome, rate notification, and effective-date language before October 15.
- Whether GST is levied on MDR at the standard services rate and whether the tax is recoverable as input tax credit for different merchant types.
- Final definition of eligible UPI transactions, merchant categories, transaction threshold, exemptions, and whether the fee applies per transaction or cumulatively.
- NPCI, RBI, finance ministry, acquiring-bank, and payment-app implementation circulars.
- Merchant association response, especially demands for surcharge permission, threshold changes, or carve-outs for small businesses.
- Changes in UPI average ticket size, transaction splitting, card usage, cash usage, and high-value UPI payment share after any announcement.
- Model incremental payment-acceptance cost by merchant segment, using average ticket size and the share of UPI volume above Rs 2,000.
- Review merchant contracts and checkout flows for the ability to absorb fees, steer tender choice, apply lawful convenience charges, or negotiate acquirer rates.
- Prioritize payment-routing and reconciliation capabilities, as banks, acquirers, and UPI apps may introduce differentiated economics for high-value UPI transactions.
- Monitor margin exposure in low-margin categories such as grocery, electronics, marketplace sellers, pharmacy, and fuel-adjacent retail.
- Prepare customer communications that avoid discouraging UPI usage while explaining any changes to payment options or transaction thresholds.