In a statement posted on its official X handle, NPCI said MDR applies only to person-to-merchant (P2M) transactions above ₹2,000. Transactions up to ₹2,000 continue to attract zero MDR, and therefore have zero GST impact.
Certain media reports have alleged that GST on UPI Merchant Discount Rate (MDR) will burden small merchants and make digital payments costly. This is incorrect.
MDR applies only to P2M transactions above ₹2,000. Transactions up to ₹2,000 continue to have zero MDR and therefore…
— NPCI (@NPCI_NPCI) September 22, 2026
Citing government data, NPCI said transactions of up to ₹2,000 constitute more than 96% of UPI merchant transaction volume. As a result, the overwhelming majority of UPI payments will not attract MDR, and hence no GST on MDR.
NPCI further stated that GST paid on MDR by a merchant will be adjusted against the GST payable on the sale of goods, in the same manner that input taxes are set off against output tax liability. Consequently, merchants do not bear the cost of GST on the MDR amount paid by them.
The payments body added that merchants with monthly UPI receipts of up to ₹1 lakh are not liable to pay MDR, and therefore do not even face the issue of GST on MDR.
“Hence, apprehensions that GST on MDR will impose an additional burden on merchants are misplaced,” NPCI said, adding that the overwhelming majority of UPI transactions and small merchants remain unaffected.
The clarification comes amid reports suggesting that the imposition of GST on UPI MDR could increase costs for small merchants and, by extension, make digital payments more expensive for consumers.
NPCI’s statement seeks to address these concerns on three fronts: the transaction-value threshold below which MDR does not apply at all, the tax set-off mechanism that offsets the GST cost for merchants who do pay MDR, and the revenue threshold below which merchants are exempt from MDR altogether.According to NPCI, these three factors together mean that the vast majority of UPI merchant transactions and small merchants are insulated from any additional cost arising from GST on MDR.
Also read: UPI MDR will not be passed on to consumers, Sitharaman says