UPI payments: GST on MDR applicable, but customers should not bear merchant charges, government sources say

Customers will not incur merchant payment charges as the government ensures businesses don't pass these costs on. Officials are monitoring the implementation closely. 

Customers should not bear merchant payment charges, government sources told news agency ANI. Officials will closely monitor implementation to ensure businesses do not pass these costs on.

The government has already discussed the issue with payment aggregators, ANI added. Efforts will also be made to address gaps in enforcement.

On taxation, government sources said, “There is no separate GST on MDR.” However, they clarified that GST would apply to MDR charges on UPI payments. Businesses can claim input tax credit against the GST paid.

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For UPI payments above ₹2,000, merchants are required to pay a fee of up to 0.4% from October 15. This fee will be capped at ₹300 for transactions of ₹75,000 or more.

Government sources state that customers should not bear the merchant payment charges to prevent additional costs being passed on to consumers, ensuring that UPI remains an affordable payment option for all.

Businesses can claim input tax credit against the GST paid on Merchant Discount Rate (MDR) charges applicable to UPI transactions, allowing them to offset their GST liability.

Stockbrokers may need to add charges for UPI-based inflows, which can undermine the economics of low-cost investing, potentially leading to additional costs for investors if fees remain a percentage of transactions.

A flat fee, such as ₹2 per transaction, may be more beneficial than a percentage charge, as it could encourage UPI use in investments while keeping costs predictable for consumers.

“GST will currently be levied on MDR charges applicable to UPI transactions. However, businesses will be able to claim input tax credit against the GST paid. Businesses have the option to set off the GST liability," the source added.

(This is a developing story. Check back for more details.)

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