- NPCI clarified GST on MDR paid by merchants is adjusted against GST on goods sold
- Merchants with monthly UPI receipts up to Rs 1 lakh are exempt from MDR and GST on MDR
- NPCI denied claims that GST on UPI MDR will burden small merchants or raise digital payment costs
National Payments Corporation of India (NPCI) has clarified that the Goods and Services Tax paid on MDR by a merchant will be adjusted against the GST payable on the sale of goods, in the same way input taxes are set off against output tax liability. Merchants, therefore, do not bear the cost of GST on the MDR amount paid by them.
Merchants with monthly UPI receipts of up to Rs 1 lakh are not liable to pay MDR and therefore do not even have the issue of GST on MDR, it added.
The NPCI posted this clarification on X after reports alleged that GST on UPI MDR will burden small merchants and make digital payments costly. "This is incorrect," the body said.
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Certain media reports have alleged that GST on UPI Merchant Discount Rate (MDR) will burden small merchants and make digital payments costly. This is incorrect.
— NPCI (@NPCI_NPCI) September 22, 2026
MDR applies only to P2M transactions above ₹2,000. Transactions up to ₹2,000 continue to have zero MDR and therefore…
Last week, the government trimmed the free UPI window by introducing a flat levy of Rs 5 on select transactions worth over Rs 2,000. A fee of 0.4% will be levied on merchant payments above Rs 2,000, but the charge will not exceed Rs 300 per transaction.
MDR applies only to person to merchant transactions above Rs 2,000. "Transactions up to Rs 2,000 continue to have zero MDR and hence no GST impact. Government data indicates that transactions of up to Rs 2,000 constitute more than 96% of UPI merchant transaction volume. As a result, the overwhelming majority of UPI payments will not attract MDR and hence no GST on MDR," NPCI said.
"Hence, apprehensions that GST on MDR will impose an additional burden on merchants are misplaced. The overwhelming majority of UPI transactions and small merchants remain unaffected," it added.
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