An 18% GST will apply on the Merchant Discount Rate (MDR) charged on eligible UPI merchant transactions from October 15, 2026, according to government officials. The GST will be levied only on the MDR/processing fee and not on the value of the UPI transaction itself.
Under the new framework, specified person-to-merchant UPI payments above ₹2,000 will attract an MDR of up to 0.4%, subject to applicable exemptions and caps. For example, on an eligible ₹10,000 transaction, the MDR would be ₹40 and 18% GST on that fee would amount to ₹7.20, taking the total merchant cost to ₹47.20.
GST-registered merchants may claim the GST paid on MDR as input tax credit, subject to the normal eligibility conditions under GST law. Person-to-person UPI transactions and other exempt categories under the MDR framework remain unaffected. CA Sansaar