UPI MDR could cost 47.2 bps with GST for merchants
One basis point is a hundredth of a percentage point.
The additional tax would raise the cost of a ₹5,000 UPI payment to ₹23.60 from an MDR of ₹20, though GST-registered merchants eligible for input tax credit may be able to set off the tax component.
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Input Tax Credit (ITC) is a mechanism allowing registered businesses to lower final tax liability by claiming credit for GST paid on purchases linked to business.
The new framework introduces a 0.4% MDR on person-to-merchant UPI transactions above ₹2,000, capped at ₹300 on transactions of ₹75,000 and above, while consumers will not be charged. It takes effect from October 15. GST is paid by the service provider who typically recover the amount from whoever receives service.
Also Read: UPI MDR could bring transaction value into payment apps’ market-share battle, industry executives sayIn this context, a merchant receives the service provided by the issuing bank (of the buyer), the payment gateway, the acquiring bank (of the merchant) and the payment app entity.
“Under the tax framework, financial and related services not covered by a specific concession or exemption generally attract 18% GST,” a source said. “That means the GST would be 18% of the MDR, not another 18 percentage points on the transaction. A 40-bps processing fee would therefore carry another 7.2 bps equivalent in GST, taking the gross merchant payout to 47.2 bps, unless the government issues a specific exemption.”
