In the past week, social media platforms and several news outlets have been abuzz with claims that the Indian government is set to impose Goods and Services Tax (GST) on Unified Payments Interface (UPI) transactions exceeding ₹2,000. This speculation triggered widespread anxiety among millions of digital payment users—including small businesses, shopkeepers, and freelancers—who depend on UPI for seamless, cost-effective daily transactions. Concerns quickly escalated, with many fearing that such a tax would increase the cost of digital payments and discourage the use of UPI, potentially reversing years of progress in India’s digital economy.
However, the Finance Ministry and the Central Board of Indirect Taxes and Customs (CBIC) have categorically dismissed these rumors, labeling them as “completely false, misleading, and without any basis”. In official statements, authorities clarified that there is no proposal to levy GST on UPI transactions above ₹2,000, nor is there any plan under consideration. The government explained that GST is only applicable to charges like the Merchant Discount Rate (MDR) on certain payment instruments, but since January 2020, MDR has been eliminated for person-to-merchant UPI transactions, making them GST-free. This clarification not only reassures users and merchants but also reinforces the government’s commitment to promoting digital payments and supporting the continued growth and innovation of the UPI ecosystem.
Government’s Official Clarification: No GST on UPI Transactions Above ₹2,000
On April 18, 2025, the Ministry of Finance issued a definitive statement rejecting widespread rumors about the imposition of GST on UPI transactions above ₹2,000. The government categorically clarified that there is no proposal or plan to levy GST on such transactions, labeling the circulating reports as “completely false, misleading, and without any basis”. The Ministry explained that GST is only applicable to charges such as the Merchant Discount Rate (MDR), which merchants pay to banks or payment processors for facilitating digital transactions. Importantly, since January 2020, the Central Board of Direct Taxes (CBDT) has removed MDR on person-to-merchant (P2M) UPI transactions, effectively eliminating any GST liability on these payments.
As a result, since no MDR is charged on UPI transactions today, GST does not apply to them. The Finance Ministry further reaffirmed its commitment to promoting digital payments and supporting the continued growth of UPI as a free and accessible payment platform for all Indians. To encourage adoption, the government has also implemented incentive schemes specifically targeting low-value UPI transactions, especially benefiting small merchants and driving financial inclusion. With UPI transaction values surging to ₹260.56 lakh crore by March 2025, the government’s clear stance ensures that digital payments remain cost-effective and user-friendly, reinforcing India’s leadership in the global digital payments ecosystem.
Understanding MDR and Its Role in GST on Digital Payments
GST is not applicable on UPI transactions themselves because the tax is levied only on the Merchant Discount Rate (MDR), which is a fee charged to merchants by banks or payment service providers for processing digital payments. Since January 2020, the Central Board of Direct Taxes (CBDT) has removed the MDR on person-to-merchant (P2M) UPI transactions, effectively eliminating any fee on these payments. Consequently, as no MDR is charged on UPI transactions today, there is no GST liability on the transaction amount itself.
To clarify, when a customer pays via credit or debit card, the MDR charged to the merchant attracts GST because it is a service fee. However, with UPI, the government’s policy to remove MDR on P2M transactions means these payments are free of such charges and thus exempt from GST. This removal of MDR has been a key driver behind UPI’s explosive growth, with transaction values soaring from ₹21.3 lakh crore in FY 2019-20 to ₹260.56 lakh crore by March 2025, making India a global leader in digital payments. The government continues to support UPI growth through incentive schemes targeting low-value transactions, benefiting small merchants and promoting wider adoption of digital payments.
A closer look at transaction patterns reveals the depth of UPI’s penetration and its pivotal role in financial inclusion. In FY 2024-25, 62.35% of UPI transactions were person-to-merchant (P2M), while 37.65% were person-to-person (P2P), reflecting the platform’s widespread adoption by small businesses and consumers alike. Strikingly, 86% of P2M transactions were for amounts up to ₹500, underscoring UPI’s importance in facilitating low-value, everyday payments—precisely the segment that would be most affected by any additional charges or taxes.
The average daily transaction value in March 2025 stood at ₹79,903 crore, with 590 million transactions processed each day. This explosive growth not only demonstrates the trust and convenience UPI offers but also highlights why maintaining a GST- and MDR-free regime is essential for sustaining its momentum and ensuring continued financial inclusion across India’s diverse population.
Payments Council of India’s MDR Demand and Government’s Response
Last month, the Payments Council of India (PCI), representing over 180 digital payments companies, formally petitioned Prime Minister Narendra Modi to reconsider the zero Merchant Discount Rate (MDR) policy on Unified Payments Interface (UPI) and RuPay debit card transactions. PCI proposed introducing a nominal MDR of 0.3% on transactions, but only for large merchants—defined as those with an annual turnover exceeding ₹20 lakh to ₹40 lakh, depending on the source—and a reasonable MDR on RuPay debit card transactions for all merchant categories.
This request comes amid growing concerns over the financial sustainability of the digital payments ecosystem, especially after the government reduced its budget for incentives promoting low-value BHIM-UPI transactions from ₹3,268 crore in FY 2024 to just ₹1,500 crore for FY 2025. PCI argues that the current subsidy covers only a fraction of the estimated ₹10,000 crore annual cost required to maintain and expand services, including investments in cybersecurity, innovation, merchant onboarding, and infrastructure upgrades.
Despite PCI’s formal appeal, the government has not yet made any decision to levy MDR or GST on transactions and continues to maintain its stance of keeping digital payments affordable and accessible, particularly for small merchants and consumers. The PCI emphasizes that introducing MDR for large merchants would create a sustainable revenue model without burdening small businesses, thereby ensuring continued investments in the digital payments infrastructure.
Industry leaders, including Amazon Pay, PhonePe, Paytm, and Razorpay, support the move, highlighting that the zero MDR regime has made it financially challenging for payment providers to invest in deeper market penetration, especially in rural areas. However, any move to reintroduce MDR charges is likely to be carefully calibrated to balance ecosystem sustainability with the government’s goal of promoting digital financial inclusion.
Impact of Rumors on Users and Businesses: Concerns and Clarifications
The widespread rumors about an 18% GST being imposed on transactions exceeding ₹2,000 triggered significant anxiety among individual users, small businesses, and freelancers who depend on UPI for their daily financial activities. Many feared that such a tax would not only increase transaction costs but also discourage the use of digital payments, potentially pushing users back toward cash-based transactions.
Small merchants, in particular, were concerned about the prospect of additional compliance requirements and the risk of having to raise prices to offset the new tax burden. Experts cautioned that any such move could undermine the remarkable progress made in India’s digital payment revolution and threaten ongoing efforts to promote financial inclusion, especially for those in rural and semi-urban areas.
However, the government’s swift and unequivocal clarification has helped to dispel these fears and restore confidence among stakeholders. The Ministry of Finance, along with the Central Board of Indirect Taxes and Customs, categorically stated that the claims of GST on transactions above ₹2,000 are “completely false, misleading, and without any basis.”
They explained that GST is only applicable to charges like the Merchant Discount Rate (MDR), which has already been eliminated for person-to-merchant UPI transactions since January 2020. As a result, there is no GST liability on UPI payments today. This reassurance preserves the user-friendliness and cost-effectiveness of the UPI platform, ensuring that digital payments remain accessible and affordable for millions of Indians, and safeguarding the momentum of India’s digital economy.
The latest data highlights the extraordinary scale and momentum of UPI’s growth, cementing its role as the backbone of India’s digital payment ecosystem. In March 2025, transactions reached a record ₹24.77 trillion in value and 19.78 billion in volume—the first time either metric has crossed these thresholds in a single month. This surge represented a 13% increase in value and a 14% jump in volume compared to February 2025, largely driven by year-end financial activity.
Over the entire financial year 2024-25, UPI processed a staggering ₹260.56 trillion in value (a 30% year-on-year increase) and 131.14 billion transactions (up 42% year-on-year), far outpacing the growth of other digital payment methods. Notably, now accounts for 80% of India’s retail digital transactions, with more than 661 banks and over 80 UPI-enabled apps participating in the ecosystem.
Conclusion: Transactions Remain GST-Free, Supporting India’s Digital Future
The government’s unequivocal denial of GST on UPI transactions above ₹2,000 sends a strong signal of its dedication to nurturing a cashless and digitally empowered economy. By swiftly addressing and dispelling rumors, the Ministry of Finance has reinforced public trust in the digital payments ecosystem, ensuring that users and merchants—especially those in rural and semi-urban areas—are not burdened by additional costs or compliance hurdles.
This clarity is particularly vital for small merchants and consumers who rely on UPI for daily transactions, as the absence of GST and Merchant Discount Rate (MDR) charges keeps digital payments affordable and accessible. The government’s policy has been instrumental in driving the exponential growth of UPI, with transaction values surging from ₹21.3 lakh crore in FY 2019-20 to an impressive ₹260.56 lakh crore by March 2025.
To further support and sustain this momentum, the government has implemented targeted incentive schemes since FY 2021-22, specifically designed to benefit low-value person-to-merchant (P2M) UPI transactions. These schemes have provided direct financial relief to small merchants by absorbing transaction costs, thereby promoting broader participation and innovation in digital payments. The increasing allocations—from ₹1,389 crore in FY 2021-22 to ₹3,631 crore in FY 2023-24—demonstrate the government’s sustained commitment to fostering a robust and inclusive digital payments infrastructure. As a result, India has emerged as a global leader in digital payments, accounting for 49% of worldwide real-time transactions in 2023, according to the ACI Worldwide Report 2024.
This transparent and proactive approach by the Finance Ministry not only quells misinformation but also highlights the critical balance between digital innovation and regulatory support. By maintaining UPI as a GST-free and MDR-free platform, the government ensures ongoing financial inclusion, supports small businesses, and encourages the continued adoption of digital payments nationwide. Such clarity and policy stability are essential for building a resilient digital economy, where innovation thrives alongside regulatory certainty, ultimately benefiting millions of Indians and reinforcing the nation’s position at the forefront of the global digital revolution.
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