{
  "id": 11164238,
  "title": "UPI MDR: Impact on GST registered taxpayers",
  "url": "https://urgent.news/2026/10/01/upi-mdr-impact-on-gst-registered-taxpayers",
  "topic": "finance",
  "section": "Finance & Markets",
  "published": "2026-10-01T09:57:47.000Z",
  "source": {
    "name": "The Economic Times",
    "slug": "the-economic-times",
    "url": "https://economictimes.indiatimes.com/wealth/tax/your-upi-payment-just-got-a-price-tag-what-it-means-for-gst-registered-taxpayers/articleshow/134614840.cms"
  },
  "original_language": "en",
  "account": "From October 15, 2026, businesses in India will face an additional fee when accepting payments via the Unified Payments Interface (UPI). The National Payments Corporation of India (NPCI) has introduced a merchant discount rate (MDR) of 0.4% on transactions over Rs 2,000. The MDR fee is capped at Rs 300 per transaction. For small merchants in the prescribed P2PM category who receive up to Rs 1 lakh a month through UPI QR codes, there is no fee.\n\nThe question arises - will GST apply to this fee? If so, how will the portions shared among banks and apps be taxed? The merchant bears this cost and cannot pass it on to the customer. Pragmatically, four practical questions will need answers: the applicability of GST, taxation of portions between banks and apps, whether the merchant must deduct tax at source (TDS), and whether the fee can be claimed as a business expense.\n\nThe MDR fee does not go to a single entity. Instead, it is passed along as follows: the customer's bank (issuing bank) retains 40%, the merchant's bank (acquiring bank) keeps 30%, the UPI app maintains 20%, and the app's sponsor bank holds 10%. Consider a transaction where a customer pays Rs 10,000 to a shop, resulting in an MDR of Rs 40. The shop receives Rs 9,960, and the MDR fee flows as follows: the acquiring bank collects Rs 40 and pays Rs 28 to the issuing bank, which then transfers Rs 12 to the app's sponsor bank, which ultimately pays Rs 8 to the app. Consequently, the acquiring bank retains Rs 12, the issuing bank receives Rs 16, the sponsor bank acquires Rs 4, and the app earns Rs 8.\n\nThe MDR fee is subject to GST at 18%, but the question of taxation remains. Is the MDR payment a single service or several separate services? When considering credit card payments under the old tax regime, the Supreme Court ruled in CITI Bank N.A. v. Commissioner of GST & Central Excise that the MDR was a unified service. As such, GST was charged on the entire MDR amount, and the merchant could claim input tax credit (ITC) under Section 16 of the CGST Act. However, applying this ruling to GST raises questions about whether the shares passed on to banks and apps constitute a \"supply\" and if they are exempt or taxable. The CBIC FAQs from 2018 indicate that card settlement fees are separate business-to-business transactions taxable under GST, but this administrative clarification does not hold the same weight as a court ruling.",
  "summary": null,
  "key_points": [],
  "editors_take": null,
  "illustration": null,
  "coverage": {
    "outlets": 1,
    "also_reported_by": []
  },
  "ai_generated": true,
  "disclaimer": "Summaries, key points and the editor’s take are written by software from other outlets’ reporting and may contain errors — always check the linked original."
}