The National Payments Corporation of India (NPCI) has announced that implementing a Merchant Discount Rate (MDR) for select UPI transactions will not impose additional GST costs on a large share of merchant payments. In a recent statement on X, NPCI clarified that the MDR applies only to person-to-merchant (P2M) UPI transactions exceeding Rs 2,000.

Transactions valued at Rs 2,000 or less will maintain a zero MDR, resulting in no GST impact from the MDR. The corporation noted that, according to government data, transactions within this threshold represent over 96% of the total UPI merchant transaction volume, suggesting that the majority of such payments will not attract either MDR or GST.

This announcement follows the introduction of a new MDR framework by the government and NPCI, which is set to take effect on October 15. Under this framework, a fee of 0.4% will apply to P2M transactions exceeding Rs 2,000.

Details on the New MDR Framework

Traditionally, UPI transactions have operated without an MDR. However, the new guidelines stipulate that merchant payments surpassing Rs 2,000 will incur a 0.4% MDR, which is capped at Rs 300 per transaction. Importantly, this change does not imply that consumers will incur fees when making UPI payments, as the MDR strictly influences merchant costs.

Furthermore, person-to-person UPI transfers remain free of charge. The framework also considers exemptions for smaller merchants, stating that those receiving up to Rs 1 lakh monthly through UPI QR transactions will not be subject to MDR charges. Certain sectors, including fuel, insurance, telecommunications, and railways, follow a different MDR structure rather than the standard rate.

Several tax experts had raised concerns that the introduction of the 0.4% MDR would attract an 18% GST, leading to increased costs for merchants. However, NPCI has clarified that since the MDR seldom applies to most UPI transactions by volume, the impact of GST will be limited.

Implications for Small Merchants

The new MDR structure mainly pertains to higher-value merchant payments, while routine low-value UPI payments continue to fall outside this framework. This adjustment signifies a notable shift in UPI’s operational model, which has previously functioned as a low-cost digital payment alternative. The government maintains that the revised guidelines are aimed at fostering the sustainability and growth of the UPI ecosystem.

Recent statistics from NPCI indicate that in August 2026, UPI processed 24.51 billion transactions worth approximately Rs 29.82 lakh crore, highlighting the extensive reach of this payment network. Despite the recent changes regarding MDR, NPCI’s latest statement underscores that not every merchant transaction through UPI will incur a fee or associated GST.

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