NCPI Allays GST on UPI MDR Fears, Says Small Merchants Will Not Be Burdened

The National Payments Corporation of India (NPCI) has moved to allay fears over the impact of the 18% goods and services tax (GST) on UPI merchant discount rate (MDR). The digital payments body said reports suggesting that GST on UPI MDR would make digital payments more expensive, and therefore burden small merchants, were incorrect. 

UPI Merchant Charges Apply to Payments Above INR 2000

According to the NPCI, MDR only applies to person-to-merchant transactions exceeding INR 2,000. The agency said government data shows that payments of up to INR 2,000 account for more than 96% of UPI merchant transaction volume. 

This means the majority of UPI payments will not be subject to MDR or GST on MDR. The NPCI introduced a 0.4% merchant fee on UPI payments above INR 2,000 last week. 

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.

MDR applies only to P2M transactions above ₹2,000. Transactions up to ₹2,000 continue to have zero MDR and therefore…

— NPCI (@NPCI_NPCI) September 22, 2026

The NPCI also clarified that GST paid by a merchant on the MDR amount can be offset against the amount payable on the sale of goods or services, the same way input taxes are adjusted based on output tax liability. This means merchants don’t bear the cost of GST on MDR amounts paid by them where such input tax credit is available. 

“GST paid on MDR by a merchant will be adjusted against the GST payable on the sale of goods, in the same manner that input taxes are set off against output tax liability. Consequently, merchants do not bear the cost of GST on the MDR amount paid by them,” the NPCI added. 

No GST Burden on UPI MDR for Small Merchants

The NPCI said small merchants whose monthly UPI receipts do not exceed INR 1 lakh would not be subjected to MDR payments. As such, these merchants would not face the issue of GST on MDR. 

Since an overwhelming majority of UPI transactions and small merchants would not be affected by the MDR and the GST on MDR, the NPCI said that apprehensions that GST on MDR would place an additional burden on merchants were misplaced. 

UPI has become a key channel for digital payments in India. This makes NPCI’s clarification about UPI GST charges critical for businesses and customers. Currently, merchant transactions represent a substantial share of UPI’s overall payments. Analysts have suggested that banks and other digital firms could generate millions of dollars in revenue from UPI fees. 

Impact of GST on MDR Exemption on Small Merchants

Exempting small merchants from GST on MDR goes a long way in sustaining UPI’s role as an affordable digital payment option for Indian businesses. With merchants receiving less than INR 1 lakh a month excluded from MDR, the new charges will have little impact on many small sellers. 

The exemption could encourage wider UPI adoption among micro and small businesses. At the same time, the GST input tax credits may further limit the cost impact for larger merchants as digital payments continue to grow.