The GST will apply only on the MDR charged on eligible UPI transactions and not the whole bill amount
New Delhi: An 18 percent Goods and Services Tax (GST) will be levied on the Merchant Discount Rate (MDR) charged on select Unified Payments Interface (UPI) transactions from October 15, according to government officials. Under the new framework, person-to-merchant (P2M) UPI transactions above ₹2,000 will attract an MDR of 0.4 percent from October 15, wherever the transaction falls within the applicable MDR category.
MDR is a fee charged for processing a digital payment transaction and is generally borne by the merchant. The applicable amount is deducted by the bank or payment ecosystem during settlement.
For example, if a merchant receives a ₹10,000 UPI payment and an MDR of 0.4 percent is applicable, the MDR would be ₹40. An 18 percent GST on the ₹40 MDR would amount to ₹7.20. The total transaction-related cost to the merchant would therefore be ₹47.20, comprising ₹40 MDR and ₹7.20 GST. The 18 percent GST will not be calculated on the ₹10,000 transaction value.
GST-registered merchants will generally be able to claim the GST paid on MDR as Input Tax Credit (ITC), subject to the applicable GST rules and conditions. The same principle will apply where a fixed fee is charged for a specified transaction. For instance, if a ₹5 fee is applicable to a qualifying transaction, the 18 percent GST would be calculated on the ₹5 fee. Similarly, where an MDR is subject to a ₹300 cap, GST would apply to the applicable MDR amount, subject to the relevant rules.
The GST treatment is similar to the existing mechanism for credit and debit card transactions, where MDR is treated as a charge for payment-processing services and attracts 18 percent GST. Eligible GST-registered businesses can claim the GST paid on such charges as ITC, subject to the normal conditions governing input tax credit.
Officials said the government is seeking to clarify that the GST is applicable to the MDR component rather than the underlying transaction value. However, the actual tax cost may vary for businesses depending on their eligibility to claim ITC, particularly those having exempt supplies.
