GST of 18 per cent to apply on MDR for UPI payments above ₹2,000: What this means

New Delhi: A Goods and Service Tax (GST) of 18 per cent will apply on the Merchant Discount Rate (MDR) of 0.4 per cent for UPI transactions above ₹2,000. Effectively, this translates to an MDR of 0.47 per cent, considering the GST of 18 per cent.

For example, the MDR for a purchase of ₹10,000 from a shop is ₹40. However, an amount of ₹47.19 will be collected from the merchant, including the GST of ₹7.19.

Registered merchants who are eligible to receive the Input Tax Credit (ITC) can later claim the amount paid as GST. At the same time, small merchants who are not eligible for ITC may not be able to claim the tax.

GST is also applicable for the minimum flat MDR of ₹5. For example, the MDR is ₹5 when purchasing petrol for ₹3,000. But, an amount of ₹5.9 will be collected from the dealer as GST of 18 per cent will apply.

GST is ₹54 for the maximum MDR of ₹300, and ₹354 will be collected from merchants for all transactions above ₹75,000.

As per estimates, the Centre expects an additional GST collection of ₹3,500-4,000 crore from MDR.

Will charges apply for a UPI payment of ₹2,500 to a friend?
No charges will be levied on person to person (P2P) transactions, however large the amount. However, if the amount is received by an institution, it will be considered a merchant transaction. Examples are, payments to business establishments such as supermarkets and e-commerce sites.

Who should pay the MDR?
MDR is collected from the merchant receiving the money. However, the merchants cannot collect the additional charge directly from customers.

Suppose, a customer has to make a payment of ₹3,000 at a shop. Will MDR apply if the payment is made in two UPI transactions of ₹1,500 each?
MDR is unlikely to be applied in this case. But payments cannot be split on many websites.

Will merchants have any benefit in receiving payments by debit/credit cards instead of UPI?
No. Currently, MDR is collected at the rate of 1.2-2.5 per cent for credit cards and up to 0.9 per cent for debit cards. At the same time, MDR is not applied for RuPay debit cards.

What will be the MDR for filling petrol worth ₹3,500?
A flat MDR of ₹5 will apply for purchasing petrol worth above ₹2,000. The minimum rate of ₹5 will be collected for railway ticket booking, telecom payments, insurance premium, electricity bill, water charge, gas bill, school fees, university fees, entrance exam fees and credit card bill payments also. Meanwhile, the MDR for share market transactions will be 0.02 per cent.

Will the government earn revenue from MDR?
No. Only the GST collected will go to the government.

Should merchants make any changes in their payment methods after October 15?
No.