UPI merchant MDR above ₹2,000 to attract 18% GST from October 15
A 0.4% MDR, capped at ₹300, will apply to merchant UPI transactions above ₹2,000, with 18% GST on the fee. GST-registered merchants may claim input tax credit, while sellers of exempt goods could face an unrecoverable cost.
What happened
NPCI says the new UPI merchant discount rate will attract 18% GST. Merchants will bear MDR on P2M payments above Rs 2,000, though GST-registered businesses can
Key facts
- 18% GST on MDR
- 0.4% MDR on merchant UPI transactions above Rs 2,000
- Rs 300 MDR cap
- Rs 5 concessional MDR for specified categories
- October 15
- 20% share of P2M transactions above Rs 2,000
- Rs 2,000 crore to over Rs 5,000 crore estimated annual GST revenue
Why this matters
Prioritize partnerships that help merchants route, reconcile, and optimize large-ticket payment acceptance, using GST input-credit support and category-specific pricing as differentiation.
What to watch
- Formal notification details on scope, threshold calculation, merchant-category exclusions, effective date and whether the MDR cap applies per transaction or per day.
- GST input-tax-credit treatment for mixed taxable/exempt businesses, composition-scheme sellers and payment-aggregator invoices.
- NPCI, RBI and government guidance on merchant surcharging, payment steering and repeated sub-threshold transaction splitting.
- UPI payment-value and transaction-share trends for tickets above ₹2,000, especially in electronics, jewellery, pharmacies, hospitals, travel and premium retail.
- Acquirer and payment-aggregator pricing announcements, including whether providers absorb part of the levy to retain merchant volume.
- Merchant-association lobbying, legal challenges, implementation delays or threshold/rate revisions.
- Model the all-in cost by category, average order value and GST-credit eligibility; separate the 0.4% MDR from recoverable versus unrecoverable GST.
- Review checkout and POS flows for bills above ₹2,000, including compliant customer messaging, payment-method routing and rules preventing artificial bill splitting.
- Renegotiate acquiring and payment-aggregator contracts, focusing on blended MDR, caps, settlement terms and category-specific pricing for high-ticket transactions.
- Protect UPI conversion for high-margin baskets by absorbing the fee selectively; consider steering only where margins are low and regulations permit.
- Audit merchant entities and product categories with exempt output supplies, since they face the highest net-cost increase and may need separate payment policies.
- Track customer abandonment and payment-method mix around the ₹2,000 threshold after implementation; test whether fee absorption is cheaper than lost conversion.