Centre Rejects Rumours Of GST Levy On UPI Transactions

The finance ministry has rejected reports that claimed that the government is mulling a proposal to levy goods and services tax (GST) on UPI transactions above INR 2,000.

“The claims that the government is considering levying GST on UPI transactions over INR 2,000 are completely false, misleading, and without any basis. Currently, there is no such proposal before the government,” the ministry said in a statement.

The GST is currently only applicable on merchant discount rate (MDR) for payments made via certain payment instruments. However, the government exempted peer-to-merchant (P2M) UPI payments from MDR in January 2020, effectively making such transactions tax free. 

“Since currently no MDR is charged on UPI transactions, there is consequently no GST applicable to these transactions,” the statement added.

The clarification follows certain media reports that claimed that single transaction UPI payments above INR 2,000 would be brought under the ambit of GST framework to enhance tax compliance and bring more digital transactions into the formal economy.

The zero merchant discount rate regime was rolled out in January 2020 for RuPay debit card and BHIM-UPI transactions through amendments in Section 10A of the Payments and Settlement Systems Act, 2007 and Section 269SU of the Income-tax Act, 1961. 

On the back of MDR exemptions, UPI has emerged as the preferred mode of online payment in the country. The payment infrastructure clocked 18,500 Cr transactions worth INR 260.56 Lakh Cr in the fiscal year ended March 2025. 

Meanwhile, the statement comes amid growing industry chatter around the long-term sustainability of UPI, especially with banks and payment service providers (PSPs) bearing the infrastructure cost but earning zero revenue from P2M transactions due to zero MDR regime. 

Due to increasing infrastructure costs for supporting the growing number of UPI transactions and thinning financial aid from the Centre, stakeholders of the fintech ecosystem have been urging the government to reconsider the regime. 

As part of this, industry players have sought a 0.3% MDR on UPI and RuPay transactions above INR 2,000 but only for large merchants with annual turnover exceeding INR 20 Lakh.

Meanwhile, amid all this, UPI has experienced several outages over the past couple of weeks. At a meeting with major banks and third-party application providers (TPAPs) last week, the NPCI reportedly urged banks and the TPAPs to be cautious when commenting publicly on the outages and said that the glitch was due to a hardware issue at a NPCI switch.