GST on UPI Payments: Applicability, Charges and Exemptions

Is GST Applicable on UPI Transactions?

Currently, GST is not levied on UPI transactions in India, regardless of the transaction amount or nature. However, if payment aggregators (Razorpay, PhonePe, Paytm, or Google Pay) levy any service charges, such payments are covered under the scope of GST.

The proposal to levy GST at 18% on UPI transactions exceeding Rs. 2000 was discussed earlier in 2024 but has not been implemented yet.

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Charges for GST on UPI Transactions

Note: The GST is levied on payment gateway charges imposed by payment aggregators and not on the transaction value.

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GST Compliance for Businesses Using UPI

Merchants accepting payments through UPI must maintain accurate accounting records in line with GST laws and other applicable regulations. Authorities generally include UPI receipts in a business’s aggregate turnover.

If a business receives funds that are not actual income or turnover, it must record and classify such transactions properly to avoid future disputes.

For instance, a street vendor recently received a GST notice because his total UPI receipts exceeded ₹40 lakhs, even though not all of it was taxable income.

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GST on International UPI Transactions

UPI, which was initially meant for domestic transactions, can now also be used to receive payments from abroad.

In such cases, businesses usually incur two types of charges: transaction fees from the payment aggregator and currency conversion fees from banks.

Both these charges fall under the purview of GST and are therefore subject to tax.

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Example of GST on UPI Transactions

1. Purchase & Payment
A customer purchases a product worth ₹1,000 and pays via UPI.

2. Merchant Receives Payment
The merchant receives the payment through a payment aggregator (like PhonePe, Razorpay, etc.).

3. MDR and GST Calculation
Assuming the aggregator charges a 1% Merchant Discount Rate (MDR):

• Service Fee = ₹10
• GST on MDR @18% = ₹1.80
• Total deduction = ₹10 + ₹1.80 = ₹11.80

4. Net Amount Credited to Merchant
The merchant ultimately receives:
₹1,000 – ₹11.80 = ₹988.20

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Customers or Merchants: Who will Bear the GST on UPI Payments?

When it comes to GST on UPI transactions, the tax burden falls mainly on merchants and payment service providers, not individual users. As a consumer, you don’t directly pay GST on UPI payments.

However, merchants incur GST on service fees charged by payment aggregators. These charges may push up operating costs, leading some merchants to increase product or service prices to recover the added expense, indirectly affecting customers.

Payment aggregators also bear GST on the service fees they collect. This increases cost pressures and can reduce their ability to offer lower transaction charges, especially to freelancers, startups, and small businesses.

If you’re a merchant or service provider, it’s essential to:

• Evaluate your UPI-related costs
• Negotiate better terms with aggregators
• Adjust your pricing strategy to maintain profitability without compromising on customer value.

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How Does GST Affect UPI Users and Merchants

As clarified by the Ministry of Finance, the government currently does not levy merchant discount rates (MDR) or platform fees on UPI transactions. Since there’s no transaction fee, GST is not applicable at this time.

However, if the government decides to introduce MDR or platform fees on UPI payments in the future, UPI users will bear the additional cost.

For example:
If you pay a vendor ₹20,000 and a 1.5% MDR is applied,

• Platform fee = ₹300
• GST on platform fee @18% = ₹54
• Total payable = ₹20,354

This system would work similarly to how credit card charges currently function.

For GST-registered businesses, any GST paid on UPI platform charges would be eligible for input tax credit (ITC). Still, MDR or platform fees would add to the business’s overall transaction costs.

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