NPCI Clarifies MDR Applicability: Only High-Value P2M UPI Moves Charged

In response to speculation about rising costs for digital merchants, NPCI clarified that the Merchant Discount Rate (MDR) will affect only person‑to‑merchant UPI transactions that exceed ₹2,000. All payments at or below this amount will continue to enjoy a zero‑rate MDR, and consequently no Goods and Services Tax (GST) will be levied on them.

Government statistics show that transactions under ₹2,000 account for more than 96% of the total UPI merchant transaction volume. This means that the vast majority of UPI payments will remain untouched by the MDR and any GST implications.

Merchants with monthly UPI receipts of up to ₹1 lakh are also fully exempt from the MDR, removing any ambiguity about GST liability for this sizable group of small business owners.

If a merchant does have to pay MDR on a qualifying transaction, the GST paid on that fee can be claimed as an input tax credit, effectively neutralising any extra cost. The finance ministry has reiterated that MDR is not a tax but a fee shared among banks, payment service providers and UPI app developers to maintain and grow the network.

The new framework sets the MDR at 0.4% for P2M transactions above ₹2,000, with a ceiling of ₹300 per transaction for amounts of ₹75,000 and above. Essential and low‑margin sectors, including railways, telecom, insurance, fuel and agricultural inputs, will face a flat ₹5 fee per transaction for amounts beyond ₹2,000, keeping costs predictable and limited.