The Merchant Discount Rate (MDR) applicable on select UPI merchant transactions will attract 18% GST, a CBIC official told NDTV Profit. He added that eligible merchants allowed to claim input tax credit (ITC) on the GST paid on MDR. The GST will be charged on the MDR component and not on the value of the underlying UPI transaction, the official said. Under the new framework, UPI person-to-merchant transactions above Rs 2,000 will attract an MDR of 0.4% from Oct. 15, subject to the prescribed cap.
GST at 18% will be levied on this MDR. This means that for a Rs 10,000 eligible transaction, the MDR would be Rs 40 and the GST on the MDR would be Rs 7.20. Therefore, the merchant would incur Rs 47.20 as the total MDR plus GST, before taking into account any eligible input tax credit. For merchants registered under GST and meeting the conditions for claiming credit, the Rs 7.20 GST component can be claimed as ITC.
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The effective tax cost would therefore depend on the merchant's eligibility and ability to utilise the credit. Merchants supplying exempt goods or services may not be able to claim or fully utilise the credit and could consequently bear the GST cost. The new MDR regime is scheduled to take effect from October 15. Person-to-person UPI transactions will continue to remain outside the MDR framework, while specified categories of merchant transactions will have separate concessional rates.
UPI MDR Charges
From Oct. 15, a 0.4% MDR will apply to person-to-merchant UPI payments above Rs 2,000. The charge will be paid by merchants, not consumers, and will be capped at Rs 300 for transactions of Rs 75,000 or more. Payments between individuals, as well as the vast majority of everyday merchant payments, will remain free. Essential services such as railways, telecom, fuel and insurance - get a flat Rs 5 fee per transaction above Rs 2,000, according to the new norms.
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Capital markets transactions (mutual funds, stockbroking) get a lower 0.02% rate, also capped at Rs 300. Small merchants collecting up to Rs 1 lakh a month via UPI QR codes remain fully exempt from any new charge, a carve-out officials say shields about 96% of all merchant transactions. UPI QR payments to merchants in rural and semi-urban areas will also remain free. 5% of MDR collections will go into a dedicated fund intended to expand UPI acceptance among small merchants.
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