FACT CHECK: Will merchants have to pay new 18% GST on top of UPI MDR fee? Centre clarifies

The Centre on Thursday rejected reports claiming that merchants would have to pay 18 per cent GST on the Merchant Discount Rate (MDR) on UPI transactions from October 15 onwards.

The earlier reports had added that this GST charge would apply to only the MDR fee and not the whole transaction. This meant that it would be levied on top of the MDR fee (of 0.4 per cent) only for UPI transactions above ₹2,000, since this is the threshold for the MDR to come into effect.

This spiralled into claims of fresh financial burdens on merchants in addition to the MDR fee, at a time when certain retailers—such as petrol pump outlets—have protested the flat ₹5 MDR fee on essential transactions.

The Centre on Thursday dismissed such claims as "rumours", pointing out that there was no separate GST on MDR transactions, an ANI report said, citing sources in the know.

The sources added that businesses would be able to claim full input tax credit against the regular GST on MDR-valid transactions, and set off the liability.

What this means is that the Centre does not expect to earn any net revenue from levying regular GST on such transactions.

The government also rejected claims by the Opposition that the newly introduced MDR fee on UPI transactions was brought in due to external pressure, calling these "false and misleading".

This comes after amendments to the Payment and Settlement Systems (PSS) Act, after which the National Payments Corporation of India (NPCI) introduced a tiered MDR structure, with peer-to-peer (P2P) transactions remaining free, a 0.4 per cent MDR on most person-to-merchant (P2M) transactions above ₹2,000.

In the case of essential transactions, such as those for fuel, railways, and telecom, the 0.4 per cent fee changes into a flat fee of ₹5.